America’s Retirement Gap

A generation since the shift from traditional pensions to mostly self-funded savings plans, fewer Americans than ever are setting aside what they need for a financially comfortable future. Only 1 in 2 workers has access to a retirement plan through an employer and half of Americans aren’t saving anything for their old age. With about 10,000 baby boomers in the U.S. now turning 65 each day, concerns are mounting about how to fix a broken system. The worry is less about absolute poverty – Social Security has made that rare – than about the millions of middle-class Americans who will find that the savings they did on their own will mean greater insecurity and lower incomes than they had during their working life.

In his 2014 State of the Union address, President Barack Obama announced a plan to create “My Retirement Accounts,” or MyRAs, for low-wage workers whose employers don’t offer the tax-advantaged 401(k) plans that have become the main savings vehicle for most Americans. The idea was to let them direct part of their pay into accounts that invest in government bonds with guaranteed principal and no fees. The amounts set aside are likely to be small, and progress on the proposal was slow — in December 2014 the Treasury Department launched a pilot program. But the MyRA plan, which Treasury hopes to expand in late 2015, has two other attractions: It can use payroll deductions to help get workers into the habit of saving, and it didn’t require congressional approval, unlike an earlier proposal to require employers to automatically enroll workers in Individual Retirement Accounts that was blocked over cost concerns. Other ideas are competing for support: A bipartisan Senate bill would encourage more small employers to offer 401(k)s, while some advocates for seniors want to increase Social Security benefits for low-income retirees. Other Democrats favor universal savings plans for newborns that would launch them into adulthood with the makings of a nest egg. Meanwhile, a wide range of companies are finding ways to shrink the contributions they make to 401(k)s.