The AARP Public Policy Institute has warned that future taxpayers could be burdened by the fact that tens of millions of private sector workers do not have access to a retirement plan offered by their employers.
According to David John of AARP, Senior Strategic Policy Advisor, the institute estimates that 57,000,000 private sector workers in America – or about half the workforce – are not offered a traditional pension plan by their employers. This problem has been persistent for decades.
An AARP survey conducted in April revealed that 20% of adults aged 50 and older had no retirement savings. More than half expressed concern about not having enough money for retirement.
John stated that people in their 50s and early 60s facing retirement with insufficient savings are experiencing a crisis.
He said that for society, “it’s not a crisis right now but it is pretty inevitable.”
John stated that the problem is a significant one and that it will affect us all, as if we don’t have the retirement savings that can supplement Social Security we are going to pay the taxes for those who did not.
Many people who lack sufficient retirement savings will need more public assistance, whether it comes from government or nonprofit programs. It could be for housing, health care, or other essential services.
John says that more than a dozen states have set up, or are in the process of setting up, state-facilitated retirement saving plans for small businesses.
Smaller businesses are less likely to offer retirement benefits than larger corporations. Pew Charity Trusts cited Bureau of Labor Statistics statistics showing that 57% of firms in the private sector with less than 100 employees offered a retirement plan by 2023. 86% of companies employing at least 100 employees and 91% of those with 500 or more workers offered a retirement benefit plan.
Small businesses are often focused on keeping afloat and have little time or money to devote to such tasks. These state programs such as CalSavers (California’s retirement saving program for employees who don’t have a retirement plan at work) are an excellent way to assist small businesses without incurring any costs.
Greg McBride is the chief financial analyst at Bankrate. He said that the biggest problem is that many workers do not realize that they can contribute to their retirement accounts independently without having to depend on their employers.
McBride explained that consumers often overlook the fact that they can still save for retirement in a tax-advantaged manner if they don’t have access to an employer’s retirement plan.
Individual Retirement Accounts (IRA) are tax-advantaged retirement savings accounts that can be opened by anyone with taxable income or by their spouse.
The IRS states that there are different types of IRAs, such as a Roth IRA and a traditional IRA. A Roth IRA is a tax-advantaged personal saving plan, where contributions can be deducted, but distributions are tax-free.
McBride acknowledged that saving for retirement is more difficult despite his claim that “the lack of employee-sponsored plans is not a barrier.” McBride said that there is no match from the employer and that IRAs have lower contribution limits than workplace plans.
He still doesn’t think that enough workers take advantage of these accounts.
