Automatic IRA Act Increases Savings Potential

By: States: Florida Source: AARP.org Date Posted: 2007-09-05 14:43:26.683158-04:00

Every American has the dream that one day they will be able to retire with enough money saved to sit back and enjoy their later years without having to report to the office at 9 am on Monday morning.
 
But for many Americans, the tools that are now available to build financial security just aren't working. Only half of all Americans are participating in their employer-sponsored savings plan, and families that are saving toward retirement aren't saving enough.

In April 2007, U.S. Senators Jeff Bingaman (D-NM) and Gordon H. Smith (R-OR) put forward a new plan that could really help. Called the Automatic IRA Act of 2007, it could be an effective mechanism to help more Americans save for retirement.
 
“Auto IRAs would enable millions of Americans who have no savings mechanism through their employer to begin building a secure retirement,” said Smith.

Senator Bingaman added, “The first step to addressing this growing inequity is to ensure that all workers have easy access to a retirement account and the ability to have part of their wages go directly from their paycheck into this account.”

The Retirement Security Project, which is headed by Mark Iwry of The Brookings Institution and David John of the Heritage Foundation, has done extensive research to find that employees as well as employers are both winners.

Employees have the opportunity to gain peace of mind in their retirement plan.  Employers can receive tax breaks as well as a better chance for recruitment by offering an automatic IRA as part of their compensation package. Another advantage for employers is that they would have to receive a definitive “no” from an employee so to not enroll them in the program. But if employees are really hard-pressed to save anything because of high expenses, they could opt out of the savings plans.

According to the Brookings Institute, “a growing body of empirical evidence suggests that the automatic 401(k) may be the most promising approach to bolstering retirement security for millions of American families.”

The AARP supports the automatic enrollment plans as a way to ensure that retirement saving responsibility falls not only with individuals but with employers as well. With the uncertainty of social security, The Automatic IRA Act of 2007 will hopefully prepare more people in the future for retirement.

For more information on Auto IRAs visit http://www.aarp.org/research/financial/ira/auto_ira_worker.html or http://www.aarpfinancial.com/.

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