Radnor News / Blog


Mon
9/21/20

posted by: Radnor Financial Advisors

RETIREMENT PLANNING – HOW STATES ARE HELPING

Remember in high school when you would sometimes show up to an exam without studying a wink? Saving for retirement is like studying for a test: the more you prepare, the better off you will be. While it’s more serious than showing up under prepared for an exam, the majority of Americans are under prepared for their retirement. Over half of Americans don’t have savings in a retirement account; and for those who do, most of their balances are only a fraction of their annual income. To combat this issue, many states are creating programs to increase enrollment in retirement plans, with Colorado being the most recent state to take action. The basic types of state plans include an auto-IRA, a marketplace, and a multi-employer plan.

Under an auto-IRA plan, employers register employees and payroll deductions automatically begin. To opt out, employees must withdraw from the program. This savings plan is effective because most employees understand IRAs and don’t opt out. Colorado, where about 40% of workers don’t have employer-sponsored retirement plans, will offer this.

Other states, such as Washington and New Mexico, offer a retirement marketplace. The marketplace is an online service where qualified financial services firms offer low-cost retirement savings plans to businesses and individuals, including sole proprietors, “gig” workers and the self-employed.  The Retirement Marketplace simplifies the process of finding a retirement savings plan by making it easy to compare state-approved plans, and similarly allows the individuals to set up automatic savings into the plan from wage income.

Massachusetts and Vermont, among other states, are offering easier access to multiemployer plans. Multiemployer plans allow smaller businesses to group together in offering savings plans at a lower cost for the firms and their employees who participate.

In Oregon, the first state that began offering auto-IRA plans, participants grew from 22,000 to 70,000 since 2018, with an average contribution of about 5% of each paycheck. While more states are registering for mandated employer retirement plans and experiencing similar success rates, the pandemic has delayed the process.

Saving for retirement is critical, especially because Social Security only provides a foundation of retirement income. It’s not an adequate wage replacement, especially for middle-to-high-income earners. Don’t walk into your retirement like you’re sitting down to an exam for which you completely blew off studying.

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