Americans need more money than ever before to live comfortably in retirement, but a large percentage of people have very little saved.
Now several states are stepping in with initiatives aimed at helping their residents save more.
Oregon has created a state-facilitated retirement savings program that allows employees to set aside a portion of their paycheck — even if their employers do not offer a traditional retirement plan, like a 401(k).
Typical 401(k) plans allow employees to automatically dedicate part of their salaries each month into a retirement plan, and employers match that savings up to a certain amount. In the Oregon model, called OregonSaves, employers do not contribute any money. The program automatically enroll Oregonians whose employers do not offer a retirement plan and sets aside part of their paycheck into a retirement fund. Earlier this year, Washington launched its own website that allows businesses and workers to sign up for existing financial savings plans in the private market.
Other states have passed laws to allow small businesses to team up so they can afford retirement plans typically only available to larger companies.
“The retirement crisis in the United States today is very real,” said Angela Antonelli, the executive director of Georgetown University’s Center for Retirement Initiatives. “The reality is as we look at what people have put away for retirement today they haven’t put a lot away for those who are age 65.”
There are numbers to prove it. Here are a few that stand out:
$25,000: Nearly half of Americans nearing retirement age (65 years old) have less than $25,000 put away, according to the Employee Benefit Research Institute’s annual survey. One in four don’t even have $1,000 saved.
There is no set amount people should save, retirement experts say. Some financial planners say you can get by with 60 percent of your annual income per year in retirement. Others encourage you to save up to 110 percent. But they all agree $25,000 is not nearly enough.
For those who do save, 55 percent are saving in a traditional savings account. Thirty-five percent contribute to traditional IRAS and 36 percent to Roth IRAs.
79: People born in the U.S. in 2016 have an average life expectancy of 79 years. That might not seem very old. But keep in mind, that’s the average; many people will live longer, and the life expectancy has grown significantly in the past several decades.
For people born in 1960, the average life expectancy at birth is 70 years. That means people born today must plan for nearly 10 more years of retirement than their grandparents did.
2026: That’s the year Medicare’s hospital trust fund is projected to become insolvent, according to an analysis released earlier this month. The date is three years earlier than previous estimates.
If the government does not step in before then, Medicare will not be able to reimburse hospital and nursing home expenses in full starting that year. Social Security’s trust fund is also projected to run out of money by 2034. As NewsHour columnist Phil Moeller explained last year, that means the payroll tax will be the only source of revenue for each of the benefit programs. In other words, as many financial advisors say to young people planning their retirements, don’t count on Medicare and Social Security — unless Congress addresses these issues.
69 percent: More than two-thirds of Latino workers do not own assets in a retirement account, according to the National Institute on Retirement Security. About 62 percent of black households don’t, either. In comparison just 37 percent of white households said they don’t have any assets saved in retirement accounts.
The Urban Institute estimates the average white family has $157,800 in retirement savings. Hispanic families have $28,500, and black families have $25,000 put away.
“The American dream remains out of reach for many African-American and Hispanic families,” said Signe-Mary McKernan, an economist at the Urban Institute.
Black and Hispanic workers tend to earn less over their lifetime, which means they have less to save than white workers. But McKernan said the financial savings system is also stacked against them.
Tax deductions for mortgages and other investments, for example, do not offer many incentives to lower-income workers. “The federal government spends billions of dollars to support long term asset building,” McKernan said. “But because they go through the tax code, they primarily benefit higher income families.”
Revamping that system to give people a higher tax refund — instead of a tax deduction — for savings and offering lower-income workers better access to retirement plans could help close the gap, she said.
15 times more likely: That brings us to the last number. People are 15 times more likely to save for retirement if their employer offers a savings plan.
The problem is, a quarter of all private sector workers don’t have access to a retirement plan. Small to mid-sized businesses are the least likely to offer a savings option, though it’s typically not because small businesses don’t want to.
“We care about our employees,” Andrew Castaneda, the assistant general manager at Renata, an Italian restaurant in Portland, Oregon, said in an interview. “We care about them now and in the future.”
The problem is that margins are thin in the restaurant industry, as they are at many small businesses, so they often can’t provide any additional benefits to their employees.
Employees want to save, too, but often don’t know how to go about doing so or are intimidated by the vast array of financial savings options out there.
Renata has since joined OregonSaves. It also aims to make saving easier for employees who participate in the program by automatically deducting 3 percent of their paycheck and putting it into a Roth IRA. Roth IRAs are similar to 401 (k) but are more flexible and provide more tax benefits.
State-run retirement programs like OregonSaves have critics, however. The U.S. Chamber of Commerce has argued that the programs will create a burden on employers that operate in multiple states.
“It becomes very complicated because not only does each state have a different program, they have different definitions of who’s covered by that program,” said Aliya Wong, the executive director of retirement policy at the U.S. Chamber of Commerce.
The Chamber does support other programs like Washington’s marketplace that relies more already-established private sector plans.
Nevertheless, more states are looking to follow Oregon’s model, hoping to make a dent in the nationwide retirement savings gap.
Editor’s Note: This article has been updated to add more detail to the entry about Medicare’s hospital trust fund.