- Without changes, the retirement-savings gap could create a $1.3 trillion economic burden through 2040, according to Pew Research.
- However, American households can close the gap over a 30-year period by saving an extra $1,685 per year, which is roughly $140 per month.
- One solution may be state-run retirement plans with auto enrollment, research shows.
Many Americans aren't saving enough for retirement — and the shortfall could pressure state and federal budgets in the decades ahead. But research shows that state-run programs could help people save for retirement while reducing that strain.
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Without changes, the retirement-savings gap could create a $1.3 trillion economic burden through 2040, with increased public assistance costs, lower tax revenue and more, according to a study released Thursday by the Pew Charitable Trusts.
If the current trends continue, 61% of elderly households are expected to have an annual income below $75,000 in 2040, and the yearly income shortfall is projected to be $7,050 by the same year.
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"Many of these retiree households with a shortfall in annual income will need social assistance in some form or another," said John Scott, director of the Pew Charitable Trusts' retirement-savings project.
Roughly half of working households may struggle to maintain their pre-retirement standard of living in their golden years, the Center for Retirement Research at Boston College reported this week.
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One of the key issues is limited access to workplace retirement plans. As of March 2022, more than 30% of private industry workers didn't have an employer retirement plan, according to the U.S. Bureau of Labor Statistics.
How 'enhanced savings' may address the shortfall
While the estimated $1.3 trillion economic burden is a significant share of state and federal budgets, Scott feels encouraged by a possible solution to help close the gap.
The report shows that American households could erase the retirement-savings gap over a 30-year period by saving an extra $1,685 per year, which is roughly $140 per month.
Scott said the savings boost may be possible through state-run retirement savings plans, noting that initial data from states already offering the program has been promising.
"Participants in these automated savings programs are saving anywhere from $105 to $190 per month," he said, referring to an average based on available state data.
For example, if you're a private sector worker without a 401(k), you may be automatically enrolled to defer part of every paycheck, say 5%, into a state-sponsored account, such as an individual retirement account, which the worker owns, Scott explained.
State-run retirement programs have become increasingly popular as more states pass legislation. In January, Georgetown University's Center for Retirement Initiatives predicted that state retirement-plan assets may exceed $1 billion in 2023.
Correction: The U.S. retirement-savings gap through 2040 was estimated at $1.3 trillion in the Pew Charitable Trusts survey. An earlier version misstated that figure.