You don't have a 401(k)? This alternative plan has helped Americans save almost $2 billion
Less than half of American households report having any retirement savings but new state-sponsored alternatives are helping workers build nest eggs.
The amount needed to retire in the United States varies widely depending on where you live along with other factors. However, there is concern that many Americans could be facing a financial crunch when they reach retirement age.
Less than half of American households reported having any retirement savings according to data in 2022. Furthermore, “only a third of working Americans are covered by an employer sponsored retirement plan, such as a 401(k),” according to Gusto, a provider of payroll, benefits and HR software for US businesses.
In recent years though, 17 states have enacted legislation to create state-sponsored auto-IRAs (Individual Retirement Account) that have helped workers whose employer does not offer a private retirement plan build nest eggs.
You don’t have a 401(k)? This alternative plan has helped Americans save almost $2 billion
Gusto found that employees that work for a company in states that have auto-IRA policies were 20% more likely to put money into a retirement account. These programs also seem to have a positive effect on getting people to contribute more to retirement savings plans.
On average, in all retirement plan, there was an 18% increase in contributions by workers to their retirement nest egg. That boils down to an additional $42,000 in lifetime savings for the average worker earning around $60,000.
For workers whose incomes are at or below the median, following the implementation of an auto-IRA program, their retirement savings rose from 2.2% to 3.4%. This resulted in an additional $150 per month of retirement income noted Gusto.
So far, the accounts of over 900,000 workers in eight of the 17 states, according to data from Georgetown Center for Retirement Initiatives, had amassed some $1.7 billion in savings as of August 2024.
All states that haven’t yet implemented auto-IRA programs have considered legislation to create one. Those that have created auto-IRA programs have different rules but generally employers are required to either offer a defined contribution retirement plan or enroll their employees into the state IRA.
The 17 states that have enacted auto-IRAs to date. They include California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, Vermont, Virginia and Washington.
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