- Without changes, the retirement savings gap could create a $1.3 trillion economic burden through 2040, according to Pew Research.
- However, American households could bridge the gap over 30 years by saving an additional $1,685 per year, which is roughly $140 per month.
- Research shows that one solution may be state-run retirement plans with automatic enrollment.
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Many Americans don’t save enough for retirement—and the shortfall could strain state and federal budgets in the coming decades. But research shows that state-run programs can help people save for retirement while reducing that pressure.
Without changes, the retirement savings gap could create a $1.3 trillion economic burden through 2040, with increased public assistance costs, lower tax revenues and more, according to study Released Thursday by the Pew Charitable Trusts.
If current trends continue, 61% of families will age expected to be An annual income of less than $75,000 in 2040, and the annual income shortfall is expected to reach $7,050 by the same year.
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“Many of these pensioner families who are short on annual income will need social assistance in one form or another,” said John Scott, director of the Retirement Savings Project at Pew Charitable Trusts.
Nearly Half of Working Families May Struggle to Maintain Their Standard of Living Before Retiring into Their Golden Years, Boston College Retirement Research Center I reported this week.
One of the main issues is the limited access to retirement plans in the workplace. As of March 2022, more than 30% of workers in private industry did not have an employer’s retirement plan, according to US Bureau of Labor Statistics.
While the estimated $1.3 trillion economic burden is a large share of state and federal budgets, Scott is encouraged by a possible solution to help bridge the gap.
The report shows that American families could erase their retirement savings gap over 30 years by saving an extra $1,685 annually, which is roughly $140 per month.
Increased savings may be possible through state-run retirement savings plans, Scott said, noting that preliminary data from Countries already offering the program was promising.
“Participants in these automated savings programs save between $105 and $190 per month,” he said, noting an average based on available state data.
For example, if you’re a private worker and don’t have a 401(k), you might be automatically enrolled to defer a portion of each paycheck, say 5%, to a state-sponsored account, such as an Individual Retirement Account, which Scott explained the worker has.
State-run retirement programs are becoming increasingly popular as more states pass legislation. In January, Georgetown University’s Center for Retirement Initiatives predicted that state pension plan assets could exceed $1 billion in 2023.
Correction: The US retirement savings gap to 2040 was estimated at $1.3 trillion in a Pew Charitable Trusts survey. An earlier version misspelled this number.