Research suggests that state-run retirement programs with automatic enrollment may be a solution.
Many Americans don't save enough for retirement. This shortfall will put pressure on state and federal budgets over the next few decades. Research shows state-run programs can help people save money for retirement and reduce the strain on budgets.
According to a report released by the Pew Charitable Trust on Thursday, if nothing is done, the retirement savings deficit could result in a $1.3 trillion burden for the economy through 2040. This would include increased costs of public assistance, reduced tax revenues, and much more.
If current trends continue, 61% elderly households will have an income of less than $75,000 by 2040. The projected income shortfall for that year is $7,050.
John Scott, the director of Pew Charitable Trusts retirement savings project, said that many of these households will require social assistance.
The Center for Retirement Research at Boston College released a report this week that revealed roughly half of households could struggle to maintain the standard of living they enjoyed before retirement.
The issue of limited access to workplace pension plans is a major concern. According to the U.S. Bureau of Labor Statistics, as of March 2022 more than 30% of workers in private industry didn't have a workplace retirement plan.
How enhanced savings can help to address the shortfall
Scott is encouraged by the possibility of a solution that could help close the $1.3 trillion gap.
The report shows that American families could "erase their retirement savings gap" in a 30 year period if they saved an additional $1,685 each year. This is about $140 a month.
Scott noted that the initial data collected from states offering this program was promising.
He said that participants in the automated savings programs save anywhere between $105 and $190 per month, referring to a state-wide average.
Scott explained that if you are a private sector worker who does not have a 401(k), it is possible to be automatically enrolled in a program where a portion of your paychecks (say 5%) will be deferred into an account sponsored by the state, such as a personal retirement account.
The amount of money that could be spent on the Internet in 2023 may surpass $1 billion.