What if every employee in America were automatically enrolled in an Individual Retirement Account?
In an ongoing study, researchers from Princeton University and the Treasury Department have analyzed just such a scenario.
Their conclusion: Not surprisingly, a national retirement savings plan would substantially raise the nation’s savings rate, especially for low-income workers.
If every worker were automatically enrolled in a retirement plan, the savings rate among low-income workers would double, from 21% to 40%.
Because fewer lower-income Americans save for retirement, a national savings plan could offer a potential solution to that challenge, the researchers say. Workers who retire with sufficient savings put less of a strain on social services.
Few low-income Americans save for retirement
The 401(k) employee retirement plan and its personal-savings counterpart, the IRA, offer tax breaks as an incentive for Americans to save.
But the programs are hardly a resounding success. Only about half of American households have retirement accounts, according to the federal Survey of Consumer Finances.
Most wealthy Americans take full advantage of retirement tax perks. In the 50-to-59-year-old age group, the researchers found, more than 90% of upper-income households (the top two-fifths of earners) have tax-favored retirement accounts.
By contrast, among lower-income Americans of the same age, retirement savings is comparatively rare. For those earning the lowest 20% of income, only…
