Retirement Programs Help Maximize Social Security Benefits
According to a new study by The Pew Charitable Trusts, many states in the US have been looking at establishing Individual Retirement Accounts (IRAs) which have automatic enrolment. Such program are called auto-IRAs or even Secure Choice Programs and are targeted at private sector employees who don’t have a workplace retirement savings plan. This way, even workers with no workplace retirement plans can use the state-run Secure Choice programs to push back claiming Social Security to maximize its benefits payouts.
So far about 50% of the states in the country are thinking about setting up auto-IRAs, and five states – California, Illinois, Connecticut, Oregon and Maryland – are in the process of implementing this program. Under these programs, people without access to a workplace retirement program automatically become a part of the program and a pre-decided percentage of their salaries are taken as a contribution. The employee always has the option of leaving the program or even changing the contribution amount.
How Does This Help Social Security Benefits?
Based on projections of 3% of a person’s income, the average amount in the auto-IRA accounts would be enough that at least 39% of the participants would have enough saved up that they will be able to delay claiming their Social Security benefits by a year or more. For every year that you are able to delay claiming your Social Security after your reach your full retirement age, your benefits payout amount increases by 8% till you reach the age of 70. According to a study conducted by GOBankingRates in 2017, about 40% of Americans have saved up less than $10,000 for their retirement. Which basically means that they have little to no savings on which to retire. Currently, there are about 57 million workers who are not covered by workplace retirement schemes. Which means most of them do not have any way of saving for their retirement. These auto-IRA programs will help this group of people by giving them the ability to save for their retirement.
The OregonSaves Program
Oregon is one of the first states to launch a state-run auto-IRA program for its private workers. Employees are being automatically enrolled with 5% of their check going into a Roth IRA. Employees also have the option of leaving the program or change the percentage amount they wish to withhold. Thus far, 436 employers in the state have registered with OregonSaves, which means about 35,800 employees are now covered by this program. Of this figure, about 21% or 7,400 have opted out of the program, while the rest of the 69% have invested close to $1.6 million in OregonSaves so far.
There was some resistance from some of the companies prior to the launch of this program. Currently, there is one group called The ERISA Industry Committee, which represents large employers that already offer retirement plans, has filed a lawsuit against OregonSaves. However, the only thing the lawsuit wants is that the current compliance requirement that already offer retirement plans to be removed.