Helping Americans Save
By: Source: AARP.org Date Posted: 2007-05-25 13:39:47.765069-04:00
By William D. Novelli, Chief Executive Officer
June 2007
An AARP member in Illinois recently wrote: “I am a single woman of 58, and I’m running scared. I’ve worked all my life since age 13. I have nothing to show for it, and I have nothing for my old age. I am sure there are millions more like me who are in the same boat as I am.”
She’s right. More than 75 million workers in this country have the same problem. Unless they are able to save more for retirement—and for many, like our Illinois member, there isn’t a lot of time left to do so—Social Security will be their only reliable source of retirement income. They will join the one out of three beneficiaries depending on a monthly Social Security payment for 90 percent or more of their income—and the one out of five relying on it entirely.
For many people, working hard for 30 or 40 years once meant getting a pension that would last the rest of their lives. Today, only a fifth of U.S. workers have a traditional pension plan. And half of all private-sector workers don’t have access to or aren’t signed up for a 401(k) or other employer-sponsored retirement plan. Just 7 percent of workers contribute to an individual retirement account (IRA) on their own. Only half of all workers have put money in a retirement account, and they’ve saved an average of just $25,000.
All this means trouble; it means a lack of retirement security for millions of people. It’s well past time for change. We need peace of mind, not constant worry, about our financial security.
At the least, employees without an employer-provided pension or savings plan should have the chance to put money aside at work through an IRA. The bipartisan Automatic IRA Act of 2007—introduced in the Senate by Jeff Bingaman, D-N.M., and Gordon Smith, R-Ore., and in the House by Richard Neal, D-Mass., and Phil English, R-Pa.—would provide that opportunity by allowing workers to save automatically in a low-cost, diversified IRA through a payroll deduction.
The bill is based on business, government and individuals sharing responsibility for fostering retirement security. It’s a practical, effective, inexpensive approach that could boost our household savings rate and offer workers a simple way to build lifelong financial security. While employers would not be obligated to match IRA contributions, they would get a tax credit to help offset the costs and protect them from liability for individual investment choices. Lower-income workers would also get a saver’s tax credit.
Our research shows that Americans overwhelmingly support auto-IRAs—79 percent would like to have workplace IRAs as an option to help them save for the future. And most AARP members—84 percent—favor these accounts. The auto-IRA is essential to help people build a nest egg for their later years. Congress has taken important steps to improve the private pension system. Now it needs to help employees without retirement or payroll savings plans at work.
Please ask your representative and senators to cosponsor the Automatic IRA Act of 2007. Go to www.aarp.org/issues/ and click on “Contact Congress.”
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