Are Americans prepared for retirement?
Though retirement accounts have improved in recent years, the answer for many Americans is “no.” In fact, about 50 percent of all Americans report that they are currently struggling or believe they will struggle with their retirement funds. It’s why most financial experts strongly advise that Americans diversify their investment portfolio and take advantage of company matches on retirement plans as soon as they’re able to do so. But it should also go without saying that this is easier said than done for some Americans.
This brings us to Auto-IRA programs, and many U.S. states are establishing them by law. In fact, at the time of this writing, Auto-IRA plans are running in three U.S. states and will be up and running soon in 14 more.
Essentially, these plans are designed to bridge any gaps with workers who are not eligible for any employer-based retirement savings program, which can be a difficult expense for many small businesses to take on. In this post, we’ll take a closer look at Auto-IRA programs and how they can help set up more Americans for retirement.
If you live in a state that has established an Auto-IRA plan and you’re currently not offered an employer-based 401(k) retirement plan, then your employer is now required to enroll you into an individual IRA retirement account that is run by the state in which you reside. Under this state plan, some 3 to 5 percent of an employee’s check will be set aside into these accounts, however, it’s also worth noting that they can opt-out of this Auto-IRA program as well.
Lawmakers in the states that have enacted such a plan hope that it will provide a necessary shot in the arm to those who may have put off seriously thinking about their retirement future. According to studies, workers are up to 15 times more likely to adequately save toward retirement if they’re able to do so through an employer plan and don’t have to open up an account on their own. With Auto-IRA plans, it’s like they’ll be saving via their employer, except the account will be run by the state that they’re living and working in. In fact, data shows that workers enrolled in auto-deduction plans save up to 50 percent more than those who do not.
However, the Auto-IRA plan is simply to assist workers in their retirement savings. There is no company match from the state. It’s simply designed as a convenient retirement savings option to help out working Americans without access to an employer retirement plan.
Auto-IRA seems to be a trending program throughout the United States, and it may only be a matter of time before it comes to your state. Is this something that you would be interested in taking advantage of should you qualify for such a program?