Far too many Americans are not financially ready for retirement: nearly half have no retirement savings at all. According to the National Institute on Retirement Security, two out of three working households with income providers between ages 55 and 64 years have at least one provider who saved less than one year’s income for retirement.
On March 12, 2015, Michal Grinstein-West, Associate Professor at Washington University in St. Louis, Missouri, offered four innovative pubic policy strategies that could improve Americans’—and your own—financial readiness for retirement.
1. Automate good financial choices by making enrollment in savings accounts the default choice for employees. Behavioral economics research and several large-scale programs demonstrate that automatic enrollment can be a powerful tool to encourage saving. For example, in 2014 Illinois passed the Secure Choice Savings Program which features automatic enrollment into a Roth IRA for private-sector workers in small businesses with at least 25 employees.
2. Maximize “golden moments” to create more saving opportunities. Tax time is the best example of a golden moment. People are already thinking about finances and receiving a tax refund which offers an ideal time to start saving. Providing taxpayers the ability to split their tax refund between a checking account and a savings account would be an effortless way to start saving.
3. Support for emergency saving would strengthen people’s overall financial stability and enable long-term saving. Too often, when people face a crisis they deplete their savings, defer paying current bills, and even go into debt to pay for emergency expenses. The new myRA program created by the U.S. Department of Treasury is an example of a flexible savings program that may provide historically underserved groups with a vehicle for dealing with unexpected expenses.
4. Facilitate saving opportunities early in life. Young adults who grew up with a savings account in their name are two times more likely to own checking accounts, two times more likely to own credit cards, three times more likely to own certificates of deposit, and four times more likely to own stocks. Studies also show that having an account in their name as a child is positively associated with financial outcomes later in life. This pattern holds true across high- and low-income families.
You don’t have to wait for any of these ideas to become public policy. You can seize this opportunity for personal responsibility over your retirement savings now. Take advantage of this golden moment to learn more about self-directed IRA accounts offered by The Entrust Group.
Source: Grinstein-Weiss, Michal. “Statement of Michal Grinstein-Weiss.” Washington, DC: Special Committee on Aging, United States Senate, March 12, 2015.