Opinion

Policymakers Propose Diverse Solutions to Retirement Savings Challenges

Published July 2015 in the National Federation of Women Legislators monthly newsletter

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Families in the United States are facing substantial and growing challenges in trying to build their retirement savings. The nation’s private sector retirement system is in a significant period of transition as the availability of defined benefit pension plans declines, and individual savings through 401(k) plans and individual retirement accounts (IRAs) becomes more common. The U.S. workforce relies heavily on employer-sponsored plans for retirement savings, yet nearly half of U.S. firms—and 70 percent of small businesses—do not offer a plan of any type. And a significant number of Americans who do have access to retirement plans are not saving enough.

The social costs and policy implications are enormous, especially for women. According to the latest Social Security Administration data, in 2010 a 65-year-old-woman was expected to live, on average, an additional 20.2 years, compared with 17.6 years for men.  That means that the average woman born in 1945 will spend a quarter of her life living off of her savings and Social Security benefits. Unfortunately, women draw smaller Social Security benefits than men because they are more likely to have worked part time and earned less; in 2014, the average woman could expect to draw $13,867 annually from Social Security compared with $18,039 for the average man.

Working part-time also can reduce an employee’s opportunity to participate in employer-sponsored retirement plans, a key factor that makes women more likely than men to live in poverty in old age. According to AARP, 10.7 percent of women 65 and older were living in poverty in 2011 versus 6.2 percent for men.

In response to the lack of retirement savings, policymakers at all levels of government have proposed a growing number and variety of solutions. For example, Illinois is implementing a statewide retirement savings program in which employers with 25 or more employees will be required to automatically transfer a set amount from their employees’ pay to a Roth IRA, unless a worker decides not to participate in the program. Adopting a different tack, the state of Washington created a public website to serve as an online marketplace for retirement plans that are designed for small employers. Other initiatives are being considered in California, Connecticut, Oregon, and Virginia, and several other states have set up task forces to study the issue.

The Pew Charitable Trusts has begun to research the implications of these issues for employees, businesses, and taxpayers. Like the National Federation of Women Legislators, we believe that good data can inform good policy.

John Scott directs Pew’s retirement savings project.

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