This state faces a growing retirement savings crisis
Far-reaching impacts could include increased public assistance costs, reduced tax revenue, and decreased household spending.
Taxpayers in Pennsylvania are expected to have to shoulder the burden of a growing retirement savings gap among their fellow citizens — a situation that could be resolved if people would save on average $25 per week toward retirement.
According to new research from Pew, about one-third of Pennsylvanians — or about 1 million full-time full-year private sector workers — do not have access to a workplace retirement savings plan, and the number of people over the age of 65 with less than $75,000 in annual income is expected to increase by 27 percent between 2015 and 2030. Inadequate retirement savings will not only decrease the quality of life for this population but also increase the burden on taxpayers to pay for services like Medicaid, said Pew.
The situation isn’t unique to Pennsylvania. Across the country, more than one-third of all private sector workers do not have access to a workplace savings plan for retirement and 31 percent of those whose employers do offer retirement benefits choose not to participate, according to a Pew analysis. Plan access is even lower among low-to-moderate wage employees, Hispanics, younger workers, and those who work at small firms.
Compounding the situation in the Keystone State is that the ratio of households 65 and older to those of working age is expected to grow nearly 50 percent, meaning the increasing financial burden will be borne by fewer and fewer people. In 2015, there were 38 households aged 65 and over for every 100 working-aged households. That number will increase to 57 households per 100 in 2030, said Pew
A 2018 report by Econsult Solutions on the fiscal and economic costs of insufficient retirement savings in Pennsylvania predicted far-reaching impacts ranging from increased public assistance costs, reduced tax revenue, decreased household spending and lower employment that could cost the state $14.3 billion over 15 years.
Working with Econsult, Pew created an interactive county-by-county data visualization to show the impact of taxpayer burden, dependency ratios and additional savings required on a highly local basis.Taxpayer burden ranges from $2,121 to $5,261, dependency ratio increase ranges from 22 percent to 92 percent, and additional savings required to offset the retirement gap ranges from $890 to $1,440.
For example, the interactive visualization shows that vulnerable older households in Allegheny County, where Pittsburgh is located, can expect an annual income shortfall of $4,800 due to insufficient savings in 2030. Without new saving, county taxpayers will need to pay a cumulative $4,393 from 2015 to 2030 to maintain existing social services to older residents. The burden is exacerbated by the fact that the aged dependency ratio—the number of aged 65 and older households to households aged 20-64—will rise by 44 percent.
In Philadelphia County, vulnerable older households can expect an annual income shortfall of $4,460 due to insufficient savings. Without new saving, county taxpayers will need to pay a cumulative $3,317 from 2015 to 2030 to maintain existing social services to older residents. The aged dependency ratio in the county will rise by 40 percent.
Even a small shift in savings could help, said the report. On average across the state, each person saving $1,170 per year, or $98 per month, over a 15 year period could erase the retirement gap, said Pew.
As such, concerned Pennsylvania lawmakers have introduced bipartisan savings legislation that would encourage people to put money away for retirement regularly by creating a state-facilitated individual retirement account program that would automatically enroll workers without access through an employer. Seven other states, including California, Colorado, Connecticut, Illinois, Maryland, New Jersey and Oregon, have adopted such auto-IRA plans, said Pew.
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.
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