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Data and Research June 12, 2023
Retirement Plan Access Deficit Could Cost Fed, States $1.3 Trillion
The lack of access for private sector workers to a retirement savings plan is likely to cost the federal government more than $1 trillion, study finds.
Reported by Michael Katz
Almost 57 million private sectors workers lack access to a retirement savings plan through their employer, which could cost federal and state governments over $1.3 trillion between 2021 and 2040, according to a new research.
The study, which was conducted by consultant Econsult Solutions for Pew Charitable Trusts, said that this lack of retirement savings could end up costing the federal government $990 billion over the 20-year period, with an additional $334 billion in costs expected to be shouldered by state governments during the same time period.
Pew Charitable Trusts hired ESI to investigate the potential economic and fiscal costs of existing trends in retirement savings. The study said that as the elderly population of the U.S. continues to grow, it is increasingly important for households to plan ahead to maintain their standard of living during their retirement years. The study aims to quantify the potential magnitude of national and state retirement savings shortfalls from 2020-2040 if current trends continue. It also defines the costs of the potential shortfalls to the U.S. and each state.
The report said that based on population projections from the U.S. Census Bureau, the population of people aged 65 and older in the U.S. is expected to increase 50% to 81.5 million in 2040 from 54.1 million in 2020. It also said the increase is about 10 times as fast as the non-elderly rate of growth and accounts for nearly two-thirds of the total population growth. Elderly Americans are also expected to make up 22% of the population in 2040, up from 16% in 2020.
“As the population changes, so too will the relative composition of elderly and non-elderly households,” said the report, which projected that there will be 54 elderly households for every 100 working age households by 2040, up from 37 in 2020. “This compositional shift will create significant fiscal pressure, since working age households form the core of the federal tax base.”
The report also said that if current trends continue, 61% of elderly households are projected to have an annual income below $75,000 in 2040, with the average annual income shortfall among the households relative to recommended replacement levels projected to be $7,050 in 2040.
According to the report, the average elderly household would need to contribute approximately $140 per month, or $1,685 a year over a 30-year period to close the projected retirement income gap.
“As the elderly population of the United States continues to grow, it becomes increasingly important that households plan appropriately to maintain their living standards in their retirement years,” said the report. “The retirement readiness of households also has significant implications for the trajectory of government expenditures on benefit programs.”