Retirement income from a variety of sources—generally Social Security, personal savings, and employer-sponsored savings plans—ensures workers a sound financial future. But for many Americans, a part of this puzzle is missing. Nationally, more than a third of all private sector workers lack access to a workplace plan—and 31% of those whose employers do offer retirement benefits don’t participate.
Pennsylvania generally follows these national trends. For instance, as many as 1 million full-time, full-year private sector workers in the state lack access to such a retirement plan through their jobs—a number that swells if part-time workers and independent contractors are included.
And, as in much of the country, access to a plan is particularly low among low-to-moderate wage employees, Hispanics, those who are younger, and workers at small firms. Owners of small firms say they want to help their workers save for retirement, but many feel that they cannot afford the costs of starting a plan or don’t have the administrative capacity to run one.
Employees also could use help. Only 51% of Pennsylvanians have tried to figure out how much they need to save for retirement—and just 31% are satisfied with their current personal financial condition when thinking of their assets, debts, and savings, according to a survey by the FINRA Investor Education Foundation.
The problem has not gone unnoticed. In 2017, State Treasurer Joe Torsella (D) convened a task force, with bipartisan participation from the Pennsylvania Legislature, as well as business and labor, to assess retirement security in the state.
As part of that work, Econsult Solutions, a Philadelphia-based economic consulting firm, released a study in 2018 quantifying the fiscal and economic costs of insufficient retirement savings. This deficit affects every corner of Pennsylvania, and results in increased public assistance costs, reduced tax revenue, decreased household spending, and lower employment. The Pennsylvania-specific study estimated these costs to the state at $14.3 billion over 15 years.
In 2020, Pew worked with Econsult to expand on this work by estimating the impact of insufficient retirement savings at the county level as well. An online interactive provides this updated and expanded analysis.
The interactive explores some of the drivers of the effects on state and local finances as well as how Pennsylvania households can address the savings gap. In Pennsylvania, the share of households with people ages 65 and older with less than $75,000 annual income is expected to increase by 27% from 2015 to 2030. And as these workers age, inadequate retirement savings will likely force reductions in the quality of life for many of them. At the same time, this shortfall will put greater pressure on public spending and increase taxpayer burdens. The additional state spending needed, for example on Medicaid and other assistance programs, would be borne by a smaller portion of the overall population.
The age dependency ratio—the ratio of households with people ages 65 and older to those of working age —is expected to grow by nearly 50% over that time period, increasing the strain on the state’s tax base. In 2015, there were 38 households ages 65 and over for every 100 ages 20-64. That first number will grow to 57 by 2030 for every 100 working-age households.
The numbers for individual counties show similar trends: For example, in Allegheny County, which includes Pittsburgh, analysts expect the number of households with people ages 65 and older with less than $75,000 in income to increase by 20% from 2015 to 2030. Over the same period, the ratio of older to working-age households will increase by 44%. The study estimated the cumulative additional taxpayer liability because of insufficient retirement savings to be $4,393 per household.
But there’s good news: Even small savings now could help offset the effects of this shortfall. If Pennsylvania households saved just $1,170 a year—less than $25 a week—over this 15-year period, they could erase the retirement savings gap, reduce the taxpayer burden, and ensure that people can maintain their lifestyles in retirement. The data show that number is slightly lower in Allegheny County, where households would need to save just $1,160 a year.
This past spring, Pennsylvania lawmakers introduced bipartisan retirement savings legislation in both chambers that would expand the state’s role in encouraging people to put money aside regularly. The bill would create a state-facilitated individual retirement account program that would automatically enroll workers without access to such benefits from employers. Seven states—California, Colorado, Connecticut, Illinois, Maryland, New Jersey and Oregon—have already adopted what are known as auto-IRA programs.
Workers could choose to opt out so that no Pennsylvanian would be required to participate. And those who do not opt out could change their contributions at regular intervals. In the three states that have implemented such programs and started regular paycheck withdrawals, average savings rates are about $100 a month.
Like the rest of the country, Pennsylvania faces the fiscal costs of an increasingly older population. But making it easier for people to set aside even modest levels of savings during their working years will pay dividends for individuals and state taxpayers in the long run.
John Scott is the director and Andrew Blevins is a principal senior associate with The Pew Charitable Trusts’ retirement savings project.
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