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Tens of millions of private sector workers do not have access to a retirement savings plan through their employer, which experts at the AARP Public Policy Institute warn could be a huge burden on future taxpayers.
The institute estimates that 57 million workers in the private sector in the US – about half of the workforce – are not offered a traditional pension or retirement savings plan by their employer, a problem that has been going on for decades, according to David John, a senior strategist. policy advisor at AARP.
In April, an AARP survey showed that 20% of adults at least 50 years old had no retirement savings, and more than half were worried they wouldn’t have enough money to support them in retirement.
John said people in their 50s or early 60s who face retirement without adequate savings are in the middle of a crisis.
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For society as a whole, he said, “It’s not a problem right now, but it’s inevitable that it will be.”
“It’s a really big problem, and it’s one that will affect all of us, because if they don’t have a little retirement money to supplement Social Security, we’re the ones paying taxes on Social Security to help people who didn’t get that opportunity,” said John.
An AARP study showed that 20% of adults at least 50 years old had no retirement savings. (Annette Riedl/photo alliance via Getty Images/Getty Images)
If many people lack sufficient retirement savings, they will need additional forms of public assistance – from nonprofit organizations or government programs. This may include support for health care needs, housing or other essential services.
To help, more than a dozen states have established or are in the process of implementing state-run retirement savings plans for small businesses, according to John.
Small businesses are more likely to not offer retirement benefits to employees compared to larger companies. The Pew Charity Trusts cited data from the Bureau of Labor Statistics showing that 57% of private companies with fewer than 100 employees will offer a retirement benefit plan as of 2023. However, 86% of companies have at least 100 employees and 91% of firms. at least 500 workers did.
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For small businesses, their primary focus is often on home, leaving little time or resources to handle such tasks. But these government programs, such as CalSavers, California’s retirement savings plan for workers who don’t have a way to save for retirement at work, are a cost-effective way to help small businesses.
More than a dozen states have established or are in the process of implementing state-sponsored retirement savings plans for small businesses. (iStock / Stock)
Greg McBride, senior financial analyst at Bankrate, told FOX Business that the biggest problem is that most workers don’t realize they can contribute to a retirement account independently, without relying on their employer.
“What consumers are missing is that not having a retirement savings plan through your employer doesn’t mean you can’t save for retirement in a tax-free way,” said McBride.
If someone or their spouse filing joint taxes has income, they are eligible to contribute to an Individual Retirement Account (IRA), which provides tax benefits for retirement savings.
An estimated 57 million private sector workers in the US are not provided with a regular pension or retirement savings plan by their employer. (iStock / Stock)
According to the IRS, there are several types of IRAs available, including a traditional IRA, a tax-advantaged individual savings plan in which contributions are tax-deductible, and a Roth IRA, a tax-advantaged individual savings plan in which contributions are deductible. but qualified distributions may be tax-free.
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While McBride says “the lack of employee benefits is not a barrier to saving for retirement,” he acknowledged that it is more difficult. There are no employee matches and there are lower contribution limits for IRAs compared to workplace-based plans, according to McBride.
However, he does not believe that enough employees are using these accounts.
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