money Expert: Many workers are 'on their own' for saving for retirement
Saving for retirement shouldn’t be a privilege or a perk depending on your employer, one expert said.
“For many workers, they just don’t have the chance to save at work,” J. Michael Collins, faculty director of the Center for Financial Security at the University of Wisconsin, Madison, told Yahoo Finance Live. “When they don't have that, it means they're out there kind of on their own and, oftentimes, end up not saving at all.”
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For employers with less than 100 employees, offering work-based retirement plans is expensive to include with employee benefits packages. And in the absence of those plans, employees have fewer opportunities to save and miss out on crucial financial perks like employer matching and pre-tax savings.
Collins considers an employee retirement plan or defined contribution plan an “advantage” because people who can make paycheck contributions can accumulate a “pretty good nest egg” before retirement over “people who don't have that option.”
Instead of waiting on an employer to offer retirement savings plans, Collins suggested opening an individual retirement account (IRA) for self-employed individuals or workers whose budget permits sporadic three or four-figure contributions. But these IRAs often double as makeshift or secondary emergency funds in times of financial crisis because they can be cashed out.
Read more: Study: Retirees more than doubled their debt in 2020
Since smaller businesses and companies can’t swing providing retirement plans on top of operating on thinner margins, Wisconsin —where Collins lives — along with a handful of other states are proposing state-sponsored IRAs for workers whose employers do not provide retirement savings plans.
The idea is that tens of thousands of workers pool their resources and “try to create a plan that is competitive” by offering low fees and more investment options, according to Collins. The goal is to “[give] this sort of buying power that large employers might have to employees or smaller organizations,” he said.
Read more: Study: Retirees more than doubled their debt in 2020
The legislation also calls for statewide mandates for “every company or firm above a certain size” to automatically enroll all workers in either the state’s plan or its own plan for retirement savings.
"And it's an opt out, so unless an employee says, 'no, I don't want to take part,' they are automatically enrolled in these savings plans," he said. “We think this is going to really reduce the rate of people retiring or getting towards retirement, with no savings from their workplace."
Stephanie is a reporter for Yahoo Money and Cashay, a new personal finance website. Follow her on Twitter @SJAsymkos.
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