The elderly population in the United States is growing at an unprecedented rate, while the number of working age households is shrinking considerably. Unfortunately, most Americans—particularly economically vulnerable households—aren’t adequately prepared for retirement. If current trends continue, the average annual income shortfall for elderly households is projected to be more than $7,000 in 2040. This shortfall would lead to increased pressure on public assistance programs, reduce tax revenue, shift the financial burden to a shrinking population of working-age taxpayers and ultimately could cost state and federal governments $1.3 trillion by 2040. However, under standard market assumptions, an additional monthly savings of $140 over a period of 30 years would completely close the retirement savings gap for economically vulnerable households. This amount shrinks to just $95 per month with the IRS Saver’s Match program.
Another policy option some states are turning to is state-facilitated retirement programs, such as auto-IRA programs, to address the retirement savings shortfall. Typically, these programs require employers to either offer their employees retirement savings access through a financial provider, or allow their employees to participate in a state-facilitated retirement savings program. Evidence from the longest operating programs in Oregon, Illinois and California show these plans have received contribution levels that meet or exceed the required monthly savings of $140. Outside of such programs, even modest levels of accumulated savings can still help vulnerable households achieve greater financial stability, improving the government’s fiscal position and the quality of life for millions of U.S. households.