Roughly half of all working Americans work for employers that offer no retirement plan. Thus about 78 million workers have no way to save on the job for the day when they stop collecting a paycheck. This circumstance, combined with a national saving rate that has been declining steadily for most of the past twenty years and the unlikelihood that Social Security will be able to provide increased benefits, makes inadequate retirement saving a major national problem.
This paper spells out an ambitious yet practical set of initiatives to expand retirement saving dramatically. We propose making saving automatic – and hence easier, more convenient, and more likely. This strategy has been shown to be remarkably effective at boosting participation in workplace-based 401(k) retirement savings. We would extend this strategy to most employees who have no access to 401(k) plans by combining several key elements of our current system: payroll-deposit saving; automatic enrollment; low-cost, diversified default investments; and individual retirement accounts (IRAs).
Automatic IRAs would not crowd out or compete with 401(k) plans. To the contrary, we would hope that successful experience with the new, automatic IRAs would lead more employers to step up to 401(k)s and then to match employee contributions – if not dollar for dollar, then perhaps fifty cents on the dollar or some other ratio. Automatic would be the operative word for the new IRAs. Once all the automatic processes described in this and other RSP publications have been developed and implemented, every step in the process, from saving for retirement to withdrawing the savings upon retirement, would occur automatically unless the individual employee or employer stepped in and affirmatively chose a different course.