Workers in the United States accumulate the vast majority of their retirement savings through employer-based plans, but large gaps in coverage exist. Pennsylvania is no exception, with about 1 in 3 workers lacking access to a workplace plan.
As in the rest of the country, Pennsylvania’s vulnerable older households—people aged 65 and older with less than $75,000 in annual income—are expected to increase by 27% from 2015 to 2030. As Pennsylvania workers age, inadequate retirement savings not only will force a reduction in the quality of life for many of them entering their golden years but will also put pressure on public spending and increase taxpayer burdens. According to The Pew Charitable Trusts in consultation with Econsult Solutions Inc., from a 2015 baseline through 2030, Pennsylvania can expect to see an additional $14.3 billion in state spending, such as from Medicaid,1 due to insufficient savings.2 This obligation will be borne by an ever-smaller share of the overall population. The aged dependency ratio—the ratio of those households 65 and older to those of working age—is expected to grow by nearly 50%, further stretching the tax base. In 2015, there were 38 households aged 65 and over for every 100 households aged 20-64. In 2030, that number will grow to 57 households aged 65 and over for every 100 working-age households.
Fortunately, even small savings now could offset the shortfall. The study finds that if households saved just $1,1703 a year—or about $98 a month—over this 15-year period, they could completely erase the retirement savings gap and allow for a retirement without lifestyle changes driven by inadequate savings.
1. Program spending includes Medicaid (long-term care, home and community-based services, long-term managed care, payment for Medicare drug program, and other Medicaid expenditures); PennCARE; property tax and rent rebates; PACE and PACENET; and free and reduced fare transit.
2. Sufficient income for residents aged 65 and over is defined as 75% of their annual working age (50-64) income, with a minimum retirement income of the federal poverty level. Incomes above $75,000 for older residents are considered sufficient regardless of the proportion of working-age income replaced.
3. All dollar amounts in this publication are in 2015 dollars and do not account for inflation.