We have all heard of the three-legged “retirement” stool meant to prop us up in our golden years — that is, Social Security, pensions, and savings. Without one leg, that stool will be hard to sit on. Unfortunately, recent statistics show that our personal savings rate continues to decline. In fact, our personal savings rate has declined so much over the last few decades that, since 2005, it has been a paltry one-half of one percent.
Individual Retirement Accounts, or IRAs, have existed for decades, with the hopes that those without employer plans would save on their own, and yet we are still faced with underutilization by the intended targets. The Government Accountability Office (GAO) recently projected that 37% of all workers will retire with zero plan savings, and that of young and low-income workers, 63% will have no plan savings at retirement. Clearly, Congress must do more to foster personal savings.
We must begin to think more creatively and use innovation to capture this group of workers who are not saving. One of these vehicles is the Auto-IRA (HR 2167), a bipartisan bill that I have sponsored along with my colleague Rep. Phil English (R-PA). With 75 million workers with no access to a workplace retirement plan, and only 10% of these workers saving on their own, clearly the current incentives are not working.
Our bill creates automatic payroll deposit Individual Retirement Accounts for workers who do not have access to employer-provided qualified pension plans. Our bill would require employers to automatically enroll employees in an “auto IRA” unless the employee opts out. These are ‘set it and forget it’ payroll deposit accounts. The non-partisan Retirement Security Project has estimated that this proposal could raise net national savings by nearly eight billion dollars annually.
At a recent hearing before a House Ways and Means Subcommittee, Dr. Leo Estrada, a member of the Board of Directors of AARP, testified in support of this bill. He said, “Studies have shown that automatic enrollment programs provide a way of improving retirement savings by using the so-called ‘power of inertia’ to change non-savers into savers.” I am pleased to be joined by the more than 39 million members of AARP in supporting this innovative savings vehicle.
As George Foreman observed, “The question isn’t at what age I want to retire, it’s at what income.” If only we all had this same observation in our 20’s, we wouldn’t be fighting so hard to save in our 50’s.
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