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What you need to know
- 57 million people—half the working U.S. population—have no access to an employer-sponsored retirement plan.
- The aging of the population, coupled with a shortage in retirement funds could lead to more retirees depending on government services.
- One possible solution is to increase access to Auto-IRAs, which are currently offered in 17 states.
Experts say that the U.S. retirement system must be changed because 57,000,000 Americans, close to half the working population in the country, do not have access to employer-sponsored plans.
Auto-IRAs or automatic individual retirement accounts could provide a viable solution. Auto-IRAs is a state-facilitated retirement program where employees without workplace retirement plans like 401(k), are automatically enrolled.
"Half of workers don't have access to a retirement plan through their employer. And workers are much less likely to save for retirement if they're not saving through a workplace plan," said Tyler Bond, a research director for the National Institute on Retirement Security. "[The state-run auto-IRAs] are meant to close that access gap."
Workers enrolled in auto-IRAs have contributions deducted from each paycheck—although employers cannot make matching contributions. According to Georgetown’s Center for Retirement Initiatives, auto-IRAs are currently offered in 17 states.
Why Do Auto IRAs need to be used?
A recent Apollo Global Management Report states that the proportion of U.S. citizens aged 65+ will increase to 23% in 2050, from its current 18%.
Many Americans do not have enough money to retire. Data from Fidelity shows that the average American 401(k), or retirement fund, was just $132,300 during the third quarter. That’s far less than what most people plan to save before retiring.
"An older population with insufficient retirement assets is going to put a fair amount of pressure on government agencies," said David John, a Senior Strategic Policy Advisor at AARP. The Auto-IRA can help relieve this strain.
Plus, new Pew data indicates that auto-IRAs don't crowd out private retirement plans—when some states started implementing auto-IRAs, private employers didn't stop offering or adopting their own workplace retirement plans.
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