A retirement-savings gap may cost the economy $1.3 trillion by 2040. How state-run programs can fix it


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Many Americans aren’t saving enough for retirement — and the shortfall could pressure state and federal budgets in the decades ahead. But research shows that state-run programs could help people save for retirement while reducing that strain.

Without changes, the retirement-savings gap could create a $1.3 trillion economic burden through 2040, with increased public assistance costs, lower tax revenue and more, according to a study released Thursday by the Pew Charitable Trusts.

If the current trends continue, 61% of elderly households are expected to have an annual income below $75,000 in 2040, and the yearly income shortfall is projected to be $7,050 by the same year.

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“Many of these retiree households with a shortfall in annual income will need social assistance in some form or another,” said John Scott, director of the Pew Charitable Trusts’ retirement-savings project.

Roughly half of working households may struggle to maintain their pre-retirement standard of living in their golden years, the Center for Retirement Research at Boston College reported this week.

One of the key issues is limited access to workplace retirement plans. As of March 2022, more than 30% of private industry workers didn’t have an employer retirement plan, according to the U.S. Bureau of Labor Statistics.  

How ‘enhanced savings’ may address the shortfall

While the estimated $1.3 trillion economic burden is a significant share of state and federal budgets, Scott feels encouraged by a possible solution to help close the gap.

The report shows that American households could erase the retirement-savings gap over a 30-year period by saving an extra $1,685 per year, which is roughly $140 per month.

Scott said the savings boost may be possible through state-run retirement savings plans, noting that initial data from states already offering the program has been promising.

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“Participants in these automated savings programs are saving anywhere from $105 to $190 per month,” he said, referring to an average based on available state data.

For example, if you’re a private sector worker without a 401(k), you may be automatically enrolled to defer part of every paycheck, say 5%, into a state-sponsored account, such as an individual retirement account, which the worker owns, Scott explained.

State-run retirement programs have become increasingly popular as more states pass legislation. In January, Georgetown University’s Center for Retirement Initiatives predicted that state retirement-plan assets may exceed $1 billion in 2023.

Correction: The U.S. retirement-savings gap through 2040 was estimated at $1.3 trillion in the Pew Charitable Trusts survey. An earlier version misstated that figure.

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