Everyone knows how hard it is to save for retirement.
If you want to open an IRA, you have figure out the difference between a "Roth" or "traditional" IRA. Then you fill out some forms, get a piece of your paycheck direct deposited to the IRA, which means filling out more forms. And if you want to invest your savings, you review a bunch of mind-numbing prospectuses. All too often, inertia prevents people from signing up.
But what if you had to choose not to save a piece of your paycheck each week. That's the idea behind a number of state proposals that aim to automatically enroll you in a retirement savings plan, unless you specifically tell your employer you want to "opt out" of the program. It turns out that millions of other American workers would be a lot further ahead saving for retirement, according to a new analysis by the Employee Benefit Research Institute (EBRI).
At the current savings rate, EBRI researchers estimate that households of Americans age 35 to 64 are going to come up short in retirement by more than $4.13 trillion. If those households were covered with an automatic IRA plan at work that set aside 3 percent of their paychecks, the deficit would fall by about $270 billion. With a 6 percent contribution, the gap would be narrowed by $490 billion to $3.64 trillion. Of course, a lot depends on how many people chose to opt out of automatic IRAs. Those EBRI numbers assume everyone stays in the plan.
The analysis looked at the impact of automatic IRAs on "retirement readiness" using a model developed by EBRI in 2003 to assess how well Americans were prepared for retirement. In addition to savings levels, the retirement readiness model looks at a number of other factors that help or hurt future retirees' financial prospects, including financial market risks, future health-care costs and changes in life expectancy. EBRI researchers compared how automatic IRAs would affect workers of a variety ages at small, medium and large businesses.