Although most Americans save for retirement through employer-provided retirement plans, nationwide nearly half of workers in the private sector lack access to retirement savings at work. In Pennsylvania, as many as 2 million workers are in this category. With many employers, including small businesses, unable to provide retirement benefits due to high startup costs and lack of administrative capacity, Pennsylvania must grapple with a key question: What happens when residents don’t have enough money to retire?
Pennsylvania’s population age 65 and over is projected to grow from 2.49 million in 2020 to 3.04 million in 2035, and the number of the state’s vulnerable older households—those 65 and older with less than $75,000 in annual income—is expected to increase by 17% during that time. Due to a lack of workplace savings options, many such vulnerable households risk having insufficient savings in retirement.1 Working with Econsult Solutions, an economic consulting firm, The Pew Charitable Trusts found that these saving shortfalls will lead to increased pressure on public assistance programs,2 reduced tax revenue, and decreased household spending by retirees while shifting the growing fiscal burden to a shrinking population of working-age taxpayers. The analysis showed that the end result for Pennsylvania will be:
- $14.6 billion3 in increased state spending from 2020 to 2035.
- $3.2 billion in lost state tax revenue from 2020 to 2035.
- 63% of older households will have an annual income of less than $75,000, and will face an expected average annual income shortfall of about $7,800 relative to recommended levels of savings.
- In 2020, there were 43 households age 65 and older for every 100 age 20-64; by 2035, that number will grow to 56 households age 65 and older for every 100 working-age households—a 29% increase—meaning that there will be fewer taxpaying households age 20-64 to support a growing elderly population.
The Pennsylvania legislature is considering legislation to establish a program for private sector workers who lack a retirement savings benefit through their employer. Like other automated savings programs throughout the country, Keystone Saves would automatically enroll workers in a voluntary individual savings account (IRA) program in which they could make regular contributions via direct deposit (workers can opt out or change their contribution level at any time). It is estimated that Keystone Saves could help Pennsylvania reduce state spending by nearly $1 billion annually.4
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1. Sufficient income for residents age 65 and over is defined as 75% of their annual income between ages 50 to 64, 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.
2. These programs include 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.
3. All dollar amounts in this publication are in 2020 dollars and do not account for inflation.