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.
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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…