Millions of Americans Are Falling Behind on Their Retirement Goals

Robin Delucia had to reenter the workforce after initially retiring at 70 because she couldn't live on her nest egg. And she's not alone. Nearly a third of retirees are considering going back to work for the same reason as Robin: Their savings aren't enough to cover their expenses. And what about Americans who are currently working and want to eventually retire? Many are struggling to save enough for the retirement they hope to have.

The numbers behind the nation's emerging retirement nightmare tell the story: Nearly 51% of Americans worry that they will run out of money when they are no longer earning a paycheck-and 70% of retirees wish they had started saving earlier. A recent Vanguard report shows that Americans at all income levels are on track to fall short of what they need for retirement, even when Social Security is included in their retirement incomes. This is a widespread and growing problem.

The vast majority of retirement savings are amassed through plans provided by employers-typically 401(k) plans-but an estimated 56 million private sector workers don't have a plan at work. That means that more than one-third of private sector workers simply don't have the opportunity to save for retirement.

This leaves state and federal policymakers facing a critical question: What happens when Americans don't have enough money to retire?

A study commissioned by The Pew Charitable Trusts last year showed that nationally, vulnerable households are projected to fall short of their income replacement target by an annual average of $7,050 by 2040. And these savings shortfalls have long-term consequences that extend beyond the retirement security of individuals. The study found that the shortfalls will lead to increased pressure on public assistance programs, reduced tax revenue, and decreased household spending by retirees while shifting a growing fiscal burden to a shrinking population of working-age taxpayers. That means taxpayers will be on the hook for $1.3 trillion in increased spending by 2040 to assist Americans without sufficient retirement savings.

But there is a policy solution that benefits both employees and taxpayers.

In June this year, Rhode Island became the 17th state to pass a law authorizing an automated retirement savings program. These programs-variously known as "auto-IRAs," "work and save," and "secure choice"-help people to save when they do not have an employer-provided retirement plan. The programs automatically enroll employees in an individual retirement account (IRA) in which a portion of their wages is set aside every pay period. Rhode Island has joined California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Vermont, Virginia, and Washington in authorizing such a program.

These state programs are working. Nearly a million savers in the eight states with active programs have amassed more than $1.7 billion in investments. Now is the time for Congress to consider how an auto-IRA program would work at the national level so that all workers, including nontraditional workers such as "gig" workers and independent contractors, have a chance to save.

This would be an important follow up to steps Congress has already taken. In 2022, lawmakers passed a suite of retirement provisions commonly referred to as SECURE 2.0, which includes the Saver's Match, a federal matching contribution for low- to moderate-income workers who contribute to a retirement savings account. Set to take effect in 2027, the Saver's Match will provide a maximum match of $1,000 per person (up to $2,000 per married couple filing jointly) per year, and it's estimated that nearly 22 million Americans will benefit.

Additionally, federal legislation could boost tax credits for small businesses that adopt retirement plans, offsetting startup and other plan expenses and making retirement benefits more attractive for firms operating on thin profit margins. Meanwhile, boosting financial literacy initiatives would equip Americans with the knowledge they need to effectively plan and save for their retirement years. These actions would significantly strengthen the financial well-being of workers across the country.

Americans want to build a secure retirement, but more than half are living paycheck to paycheck and are frequently having to decide between focusing on daily survival and planning for their futures. Policymakers have the opportunity-and responsibility-to further strengthen Americans' retirement security. Insufficient retirement savings hurts retirees and taxpayers alike. The time has come to take action and make it easier for everyone to save for retirement.

John Scott directs The Pew Charitable Trusts' retirement savings project.

This op-ed was first published in Governing on October 24, 2024.

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