Lack of retirement savings in the US will cost $1.3 trillion -Dlight News

retirees walkers

(Bloomberg) – The U.S. pension crisis could cost federal and state governments an estimated $1.3 trillion by 2040, according to a new analysis.

According to a report prepared for the Pew Charitable Trusts, inadequate retirement costs will result in higher welfare bills, lower tax revenues, lower household spending and a drop in living standards.

The projected cost — $964 billion for the federal government and $334 billion for the states between 2021 and 2040 — is “relatively shocking,” said John Scott, director of Pew’s retirement savings project, during a presentation Thursday.

Part of the deficit is due to demographics, with the proportion of households with people aged 65 and older having annual incomes of less than $75,000 — a figure the report says indicates financial vulnerability – expected to increase by 43% to 33 million by 2040.

The report found that a modest increase in the saving habits of these “at-risk” households could ease the expected strain on federal and state budgets. Saving an additional $140 per month, or about $1,685 per year over 30 years, could eliminate the retirement savings gap and additional tax burden, the analysis said.

The study assumed an inflation-adjusted return of 5% for assets that transitioned from a more aggressive to a more conservative portfolio over three decades.

The study pointed to the rise of federally sponsored automated retirement accounts being rolled out in 12 states to help up to 56 million private sector workers without employer-sponsored retirement plans. Such Auto IRA Programs As a rule, employees are automatically logged on, who can then log off.

Unlike many large private company retirement programs, auto IRAs are Roth accounts that are funded with a small percentage of an employee’s after-tax paycheck. Users do not have the ability to reduce their taxable income by contributing to retirement plans on a pre-tax basis like employees do with 401(k) plans, and there are no equivalent contributions from employers.

To contact the authors of this story:
Suzanne Woolley in New York [email protected]

Steven Crabill in New York [email protected]

Source link