The world is experiencing an unprecedented era of human longevity, with life expectancies reaching 80 in many developed nations. In the U.S., people who reach the age of 65 can expect to live an average of 20 additional years. Among people who reach the age of 65, 70% will eventually require some form of long-term health care, and 30% will eventually receive nursing home care. The costs of long-term care are staggering, and our entire society shoulders the burden as evident by the fact that Medicaid and Medicare account for 21% of the federal budget. Health care of course is just one of many costs that burden the elderly.
This new era of longevity requires the elderly to save huge sums of money in order to support themselves in their retirement years. A person must save $1 million in order to generate an annual income of $40,000 in retirement. In order to accumulate this type of savings, people need more than access to savings accounts—people need access to retirement accounts. Currently, 49% of Americans say that they are not saving anything for retirement. In fact, half of workers have no access to an employer-sponsored retirement savings plan.
The Woodstock Institute released a report this week entitled Coming up Short: The Scope of Retirement Insecurity Among Illinois Workers. This report presents data revealing the declining financial state of retirees and the need for an efficient and accessible retirement savings program for the average American worker, such as an Automatic Individual Retirement Accounts (Automatic IRA) program. Automatic IRAs would be government-sponsored, defined contribution retirement plans for workers who lack access to an employer-sponsored retirement plan. Employers not offering a retirement plan would be required to give their workers the opportunity to enroll in an Automatic IRA. Employees would contribute to these accounts through regular payroll deductions administered by their employers.
According to the Woodstock report, since 2005, the median net worth of households has dropped by more than 28%, social security replaces on average just 39% of pre-retirement income, and only 49% all wage and salary workers currently have retirement accounts. In Illinois, the report found that over half of all private sector workers lack access to an employment-based retirement savings plan. In fact, only 2.2 million private sector workers in Illinois, or 46.6 percent, had access to an employment-based retirement plan in 2010, while 2.5 million, or 53.4 percent, did not have access to such a plan.
Studies have found that the benefits of Automatic IRAs outweigh the administration costs of operating such a program. It is estimated that this form of financial security would cost just $25 per person to implement and administer. Additionally, an AARP study shows that a national Automatic IRA program would “boost national savings” and expand access to retirement accounts among the middle class.
Legislation to create a national Automatic IRA program was introduced in the 2006, 2007, and 2010 Congresses and was reintroduced again this year. It has also been included in several of the Obama Administration’s budget proposals including its FY 2013 budget request. Several states, including Illinois, have introduced Automatic IRA legislation, although none has passed thus far. While not yet law, there appears to be bipartisan support for this concept. Both Republicans and Democrats have supported the Congressional proposals, as have groups such as The Heritage Foundation, Brookings Institution, and the AARP. The reason for such bipartisan support is that the concept promotes both progressive and conservative values. On the progressive side, it promotes equality and social justice. On the conservative side, it promotes personal responsibility, merit, and individualism.
The Shriver Center advocates for this type of program and will lobby members of the Illinois General Assembly to pass a comprehensive Automatic IRA law in this coming legislative session. We believe that providing everyone with the opportunities to accumulate long-term savings is a major step in building a more equal and fair society.