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Tens of millions of private sector workers lack access to a retirement savings plan through their employers, which experts at the AARP Public Policy Institute warn could place a significant burden on future taxpayers.
The institute estimates that 57 million private sector workers in the US – about half of the workforce – are offered neither a traditional pension nor a retirement savings plan through their employers, a problem that has persisted for decades, said David John, senior strategic advisor. policy advisor at AARP.
In April, an AARP survey found that 20% of adults at least 50 years old had no retirement savings, and more than half worried they wouldn’t have enough money to support them in retirement.
John said those in their 50s or early 60s who retire without sufficient savings are in the midst of a crisis.
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For society as a whole, he said: “It is not a crisis at the moment, but it is almost inevitable that it will be.”
“It’s a very big problem, and it will affect all of us, because if we are not the ones with the small retirement savings to supplement Social Security, we will be the ones paying the taxes into Social Security.” help the people who didn’t have that opportunity,” John said.
An AARP survey found that 20% of adults at least 50 years old had no retirement savings. (Annette Riedl/Photo Alliance via Getty Images/Getty Images)
If many people don’t have enough retirement savings, they will likely need more forms of public assistance – from nonprofits or government programs. This may include support for healthcare needs, housing or other essential services.
To help, John says, more than a dozen states have already established or are in the process of establishing state-facilitated retirement savings plans for small businesses.
Small businesses are more likely than larger businesses to not provide retirement savings benefits to their employees. Pew Charity Trusts cited Bureau of Labor Statistics data showing that 57% of private sector companies with fewer than 100 employees offered a retirement plan as of 2023. 86% of companies with at least 100 employees and about 91% of companies with at least 500 workers did so.
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For small businesses, the focus is often on staying afloat, leaving little time or resources to complete such tasks. But these state programs, like CalSavers, California’s retirement savings program for workers who have no way to save for retirement at work, are a way to help that comes at no cost to a small business.
More than a dozen states have already established or are in the process of implementing state-facilitated retirement savings plans for small businesses. (iStock / iStock)
Greg McBride, Bankrate’s chief financial analyst, told FOX Business that the bigger problem is that most workers don’t realize they can still contribute to a retirement account on their own, without having to rely on their employer.
“Something consumers are missing out on is that the lack of access to a retirement savings plan through your employer doesn’t mean you can’t save for retirement with tax benefits,” McBride said.
If a person or his/her spouse with whom they file taxes jointly has earned income, they are eligible to contribute to an individual retirement account (IRA), which offers tax benefits for retirement savings.
It is estimated that 57 million private sector workers in the US are not offered a traditional pension or retirement savings plan through their employer. (iStock / iStock)
According to the IRS, there are several types of IRAs available, including a traditional IRA, a tax-advantaged personal savings plan where contributions may be tax-deductible, and a Roth IRA, a tax-advantaged personal savings plan where contributions are not deductible. but qualified distributions may be tax-free.
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While McBride said “the lack of employee-sponsored retirement savings is not a barrier to saving for retirement,” he acknowledged it is more difficult. According to McBride, there is no matching between employees and there are lower contribution limits for IRAs compared to workplace-based plans.
Still, he doesn’t believe enough employees are abusing these accounts.
