In Pennsylvania, as many as 1 million full-time, full-year private sector workers lack access to a retirement plan through their jobs, a number that swells to 2 million if part-time workers and independent contractors are included. Many owners of small companies, meanwhile, want to help their workers save for retirement. But the owners fear the costs of starting a plan, or don’t have the administrative capacity to run one.
How do these problems affect taxpayers? In 2018, Econsult Solutions, a Philadelphia-based economic consulting firm, quantified the fiscal and economic costs of workers not saving for retirement and found that insufficient savings resulted in increased public assistance costs, reduced tax revenue, decreased household spending, and lower employment. The state-specific study, done for the Pennsylvania Treasury Department, estimated the total cost to taxpayers over 15 years at $14.3 billion in increased social assistance and $1.4 billion in lost tax revenue.
Pew recently worked with Econsult to expand on this work to estimate the impact of insufficient retirement savings at the county level. An online interactive provides this more detailed analysis.
According to the data, the share of Pennsylvania households with people 65 and older and less than $75,000 annual income—an indicator of financial vulnerability—is expected to increase by 27% from 2015 to 2030. And, as these workers age, inadequate savings will likely lead to reduced retirement income and quality of life for many.
At the same time, the retirement income shortfall will put greater pressure on public spending for social services and increase taxpayer burdens. The analysis shows that the additional state spending needed, for example on Medicaid and other assistance programs, would be borne by a smaller portion of the overall Pennsylvania population.
The age dependency ratio—the ratio of households with people 65 and older to those of working age—is expected to grow by nearly 50% over the same time period, further increasing the strain on the state’s tax base. In 2015, 2.6 working age households supported each household age 65 and over. That ratio will decline to 1.8 by 2030, meaning there will be fewer workers to support a burgeoning senior population.
The numbers for individual counties demonstrate this trend: In Allegheny County, which includes Pittsburgh, the number of households with people 65 and older and less than $75,000 in income is expected 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 estimates the cumulative additional taxpayer liability linked to insufficient retirement savings to be $4,393 per household in the county.
But there’s good news: Even small savings now by workers could help offset the effects of this shortfall. If households in the state 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 shows that number is slightly lower in Allegheny County, where households would need to save $1,160 a year to help close the projected gap.
Lawmakers in Pennsylvania earlier this year introduced legislation that would make it easier for workers to save. And enacting the Keystone Saves Act (H.B. 2156) would help address the state’s potential fiscal shock. The bipartisan retirement savings bill would expand the ability of private sector workers to put money aside regularly from their paychecks.
Keystone Saves would create an individual retirement account (IRA) program that would automatically enroll workers without access to employer-based benefits. Ten states—California, Colorado, Connecticut, Illinois, Maryland, Maine, New York, New Jersey, Oregon, and Virginia—have already adopted what are known as auto-IRA programs.
Workers could choose to opt out; no Pennsylvanian would be required to participate. Those who remain in the program could change their contributions at regular intervals. In the three states that have implemented auto-IRA programs—California, Illinois, and Oregon—average savings rates are about $150 a month.
Like the rest of the country, Pennsylvania faces the fiscal strain of an aging population. Making it easier for people to set aside even modest levels of savings during their working years will pay real dividends for individuals and state taxpayers in the long run.
John Scott directs The Pew Charitable Trusts’ retirement savings project.