August 25, 2022

Left to their own devices, Americans who lack a retirement savings plan at work do not usually take the initiative to set up an IRA and save on their own.

Oregon lawmakers decided to do something about that, and a new study finds that their approach of requiring employers without a plan to automatically enroll their workers in a state-sponsored IRA is reaching the right people.

Nationwide, lower-income workers are much less likely to have a retirement plan, and the typical employee enrolled in the program, OregonSaves, earns only $22,600. They also tend to work in high-turnover industries like food service and healthcare where constant job changes make it difficult to save consistently. When an Oregon worker finds another job in the state, he can take his IRA with him to the next employer.

Private-sector 401(k)s with auto-enrollment match some of the workers’ contributions and have nearly universal participation. In OregonSaves, the share of people with positive account balances in their IRAs, which don’t have a match, is lower.

But these are the types of workers who don’t usually save, and the vast majority told their employers they had not been saving prior to being enrolled in OregonSaves. The program “has meaningfully increased employee savings,” concluded a new study funded by the U.S. Social Security Administration.

At the end of May, the average balance in about 114,000 IRA accounts was $1,324. The employees have saved a total of $151 million.

Auto-enrollment gets these low-paid workers into the IRA. But an important reason they choose not to opt out – as they are permitted to do at any time – is that they’ve probably known they should be saving for retirement and OregonSaves made it easier. …
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On the Web

April 1, 2021

It’s difficult to envision what life will look like on the other side of the consequential decision to retire.

But research can help demystify what lies ahead – about the decision itself, the financial challenges, and even the taxes. Readers understand this, as evidenced by the most popular blog posts in the first three months of the year.

Here are the highlights:

The retirement decision. The article, “Retirement Ages Geared to Life Expectancy,” attracted the most reader traffic. Myriad considerations go into a decision to retire. But a sense of whether one might live a long time – because of good health or simply seeing that parents or neighbors are living unusually long – is a compelling reason to postpone retirement either to remain active or to build up one’s finances to fund a longer retirement.

A recent study found that as men’s life spans have increased, they have responded by remaining in the labor force longer, especially in areas of the country with strong job markets and more opportunity. This is also true, though to a lesser extent, for working women.

The planning. The second most popular blog was, “Big Picture Helps with Retirement Finances.” It described the success researchers have had with an online tool they designed, which shows older workers the impact on their retirement income of various decisions. When participants in the experiment selected when to start Social Security or how to withdraw 401(k) funds, the tool estimated their total retirement income. If they changed their minds, the income estimate would change.

The tool isn’t sold commercially. But it’s encouraging that researchers are looking for real-world solutions to the financial planning problem, since the insights from experiments like these often make their way into the online tools that are available to everyone.

The taxes. It’s common for a worker’s income to drop after retiring. So the good news shouldn’t be surprising in a study highlighted in a recent blog, “How Much Will Your Retirement Taxes Be?” Four out of five retired households pay little or no federal and state income taxes, the researchers found. But taxes are an important consideration for retirees who have saved substantial sums. …Learn More