A record number of Americans will reach the age of retirement at 65 this year, according to a Protected Income project. 

This historic surge will last through 2027, with 4.1 million Americans turning 65 each year, the project says. It says 11,200 will hit the age of retirement every year. 

An article from Pew Trusts says the retirement savings gap has improved in recent years but studies consistently have found that most Baby Boomers haven’t saved enough, forcing them to rely primarily on Social Security and Medicare. 

“The Pew Charitable Trusts estimates that by the end of 2040, insufficient retirement savings will have cost states and the federal government a combined $1.3 trillion since 2021 in increased public assistance spending, administrative costs, and reduced tax revenue,” according to the article. 

States have started to take action with automated savings programs for private sector workers implemented in 17 states. This includes Minnesota, Nevada, and Vermont passing legislation in 2023 and Rhode Island and Washington in 2024. 

“These initiatives allow employers that didn’t previously offer retirement savings plans to provide low-to-no-cost benefits for their workers,” the article says. “As their name implies, auto-IRA systems automatically enroll employees into individual retirement accounts (IRAs) and, once enrolled, workers can choose to make regular contributions through payroll deductions.”

While employees are able to opt out of auto-IRAs, participation rates have shown most are keeping the plans, the article says. It says the auto-IRA plan in Oregon was launched in 2017 and 75% of employees enrolled have decided to stay. This includes 152,000 workers setting aside about $312 million to date. 

Nationwide, 915,000 have been enrolled and saved $1.7 billion, the article says. 

“Nationally, the strains on state budgets associated with the retirement surge are particularly evident in rising health care costs,” the article says. “Medical expenses for Americans over 65 are almost four times those for 20- and 30-year-olds. Further, older Americans are more likely than working-age individuals to live in low-income households and to rely on Medicaid for their health care. For these reasons, an aging population creates twin pressures on Medicaid—and state budgets—through higher enrollment and higher costs per enrollee.”

States will also see a strain on other budgets such as Human Services to Natural Resources, the article says. It will also weaken tax revenue growth. 

“Two-thirds of states’ total tax collections come from personal income and general sales taxes,” the article says. “As Americans retire, their incomes tend to fall, especially if they have insufficient savings, meaning they pay less in personal income taxes, and older people tend to spend less — and so contribute less in sales taxes — than their younger counterparts.”

While auto-IRAs can help address challenges, they are not a complete solution, the article says. 

The article uses Vermont as an example of a state trying to address retirement with multiple methods. It says the state has the second-oldest population with more than one-fifth of the residents 65 or older. 

“By 2040, 41% of its households will be headed by someone age 65 or over,” the article says. “Vermont also has the dubious distinction of having the lowest fertility rate in the nation, and researchers project that the state’s population will start to shrink over that same span.”

A 2019 analysis conducted by Vermont found that the aging population will put pressure on the state’s budget, specifically due to a decrease in taxable income and a shift in consumer spending, the article says. 

Through a multi-prong plan, the state approved an auto-IRA program but is also working on efforts to attract a younger population. In 2018, it created a Worker Relocation Incentive Program to fill an economic void left by retiring workers, the article says. 

Pew Trusts says that while auto-IRAs won’t solve all the problems, they are a good place for states to start. 

“Auto-IRA programs are a relatively new approach for states, but they are expanding quickly,” the article says. “The amount saved in auto-IRA accounts has more than doubled every two years. And because most retirement savings account growth is exponential, those strong gains can be expected to continue. A little saved every day goes a long way.”

Multiple federal bills that would require auto-IRAs haven’t moved far in Congress. An Automatic IRA (Individual Retirement Arrangements) Act of 2024 was introduced in February and referred to the House Ways and Means Committee but hasn’t moved since. 

SCRS’ MEP was launched on April 1, 2019, to “help participating businesses and employees save expenses relevant to their 401k balances, reduce administrative responsibilities for companies, and provide fiduciary support.”

It also allows businesses to customize their plan features, offers administrative support to help businesses with the transition, and requires one audit for the entire plan, saving companies that do their audits both money and time.

Visit www.scrs.com/401k to contact the advisory team and complete a basic request for more information.

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