Hundreds of millions of pounds have been saved by more than 400,000 workers who have invested in state-run retirement programs.
The programs were launched in 2017 in California , Illinois and Oregon and nearly 430,000 accounts have been funded since the inception in 2017.
So far, 46 US states have either implemented or are considering introducing legislation.
Individuals who did not have access to a 401(k) plan – the standard private pension scheme – or other equivalent employer alternative have saved more than $400 million in individual retirement accounts as a result of these programs.
To date, there are three states that have them up and running, although others are on deck.
Angela Antonelli, executive director of Georgetown University’s Center for Retirement Initiatives said: “Making these available to more private-sector workers so they can save for retirement is absolutely critical”
The rise of these state-run programs is part of a broader effort to increase the ranks of retirement savers. An estimated 57 million workers lack access to a plan at their job
According to Vanguard’s current How America Saves report, the median account balance for those approaching retirement — those aged 55 to 64 — is $84,714.
According to Fidelity Investments, if you want to retire at the age of 67, you should have 10 times your annual wage saved.
Maryland and Colorado are slated to start their own versions this year, while Connecticut will go from a pilot to a full launch.
A few other states, such as Massachusetts, Vermont, and Washington, have systems that work in a different way, with participation being entirely voluntary.
Maine, New Mexico, and Virginia are among the states that are just getting started with their programs.
Since 2012, 46 states have enacted or explored legislation to introduce retirement savings initiatives for workers who do not have a plan at work.
Although it is possible to open a retirement account outside of work, AARP, the advocacy group for older Americans, claims that people are 15 times more likely to save if they can do so through a workplace plan.
While large firms are more likely to offer a retirement plan, the expense and administrative burdens of setting one up might be prohibitive for small business owners.
As a result, these state-run programs can help those workers gain access to a workplace plan.
Although the state-run schemes differ slightly, the overall concept is that employees are automatically enrolled in a Roth IRA by a payroll deduction (beginning around 3% or 5%) unless they are opted out.
Employers pay no fees, and the accounts are managed by an investment firm. OregonSaves, which launched in 2017, has an opt-out rate of about 32 percent, according to the program’s most recently available data.
The average account balance is $1,331.
The annual Roth IRA contribution limitations have also been reduced. In 2022, you can contribute $6,000, while higher earnings will be limited in their contributions if they can contribute at all. Anyone over the age of 50 is also eligible for a $1,000 “catch-up” contribution.