If more isn’t done to jump-start the way most Americans save for retirement, millions of proud, hard-working middle-class families will fall into poverty when they retire. That’s why retirement has been the No. 1 fear in every Gallup poll since 2000. In fact, a National Institute of Retirement Security survey found 78% of Americans fear retirement more than death.
Fixing our retirement system has become a question of “pay me now, or pay me later.” To attract public and private support, programs must be offered that work, create little pain and have low cost structures, while promoting individual responsibility for retirement saving. Left alone, this problem will cost us far more to fix down the line — in public funds, and diminished human lives.
But there is hope, potentially the greatest transformation since the Social Security Act was passed in 1935. More than 30 states are now examining ways to help solve this problem. And unlike in Washington, D.C., the states are working in a bipartisan manner.
On Sept. 9, California became the eighth state to pass legislation to establish retirement savings programs for private-sector workers whose employers do not offer a plan. It followed Washington, Illinois, Oregon, Connecticut, Massachusetts and New Jersey, in addition to Maryland, where we tracked and supported the legislation from inception through signing.
These efforts promise to help improve the retired lives of millions of Americans. That these laws were passed swiftly and with strong bipartisan support exemplifies how the states can lead.
They understand the good news. People save when it is easy, when their employers offer retirement savings plans that are essentially automatic, even if they allow for opt-outs. According to a 2015 Vanguard Group study, retirement plan participation rates for new employees are 91% under automatic enrollment, compared with 42% under voluntary enrollment. Statistics from an AARP Inc. 2014 study show that 67% of workers who make less than $30,000 annually will participate with an auto-enroll feature, way up from 26%.
Many large companies, governments and unions provide retirement plans, but it is often expensive and difficult for small business to do so. That means the half of Americans who work for small businesses often do not have an easy way to save. A 2016 Employee Benefit Research Institute survey showed that 42% of American workers have saved less than $10,000 for retirement, and 64% have saved less than $25,000, largely because of lack of access to a plan.