Two big hurdles keep many Americans from saving for retirement

There are two big reasons for the lack of savings — and one of them is not easily solvable. Many workers don’t have employer-provided retirement accounts, while others simply don’t have anything to save.

“Access to a retirement plan is an important driver — roughly half of American workers don’t have that,” said Craig Copeland,EBRIsenior research associate. “Many workers are low-wage workers throughout their careers and really don’t have enough money to save in a retirement plan. They are trying to pay off debts to just make ends meet.”

No access to an employer’s retirement plan

Traditional employer-based retirement plans are typically not available for contractors, freelancers, gig economy workers, and part-time workers. And only 42% of small businesses with less than 100 employees offer retirement benefits, according to a LIMRA 2019 study.

“Why small businesses don’t offer retirement benefits to their employees is pretty straightforward,” said David Deeds, the Schulze Professor of Entrepreneurship at the University of St. Thomas in St. Paul. “They didn’t need to in order to hire and retain employees in the previous labor market, weren’t required to by state or federal governments, and the perceived costs and complexity (real or imagined) of managing retirement benefits kept at least half of small business from offering retirement benefits.”

Even without a workplace retirement savings plan, those with earned income can still contribute to an IRA, said Greg McBride, chief financial analyst at Bankrate.com.

“You can open an IRA with a brokerage, mutual fund company, your bank or credit union in many cases,” he said. “Have an automatic monthly transfer from your checking account into your IRA to automate retirement savings.”

A handful of states – Oregon, California, and Illinois – now offer auto-IRA state-sponsored retirement savings plans to workers without employer-sponsored plans. Other states are considering crafting similar offerings. These state-facilitated programs automatically enroll workers in moderate risk, low-cost retirement savings accounts called auto-IRAs.

Three-quarters of Americans say they would participate in state-supported retirement programs if offered one in their state, according to a survey by the National Institute on Retirement Security, a nonprofit, non-partisan research and education organization.

“State-sponsored retirement savings plans offer the best chance in the near term to increase the number of Americans with access to payroll deduction retirement savings plans,” wrote David John, deputy director of the Retirement Security Project at the Brookings Institution think tank, Mark Iwry, senior fellow in Economic Studies, and William Gale, director of Brookings’ Retirement Security Project, in “Wealth After Work,” which explores solutions to help all Americans gain access to retirement savings accounts.

It’s not a foolproof way to get workers to save. For instance, for the Oregon plan that began in 2017, about one-third of eligible workers opt out.