Pennsylvania resident’s lack of retirement savings could cost the state $14.3 billion by 2030. This is based on a study completed by Econsult Solutions Inc., which provides economic consulting services, public policy, and finance, as some of its services.
Initially, the study was commissioned by the Pennsylvania Treasury, in order to determine the impact of insufficient retirement savings on their finances.
According to the study, the shortfall in retirement savings is because of reduced household spending within the state, weak job growth, reduced tax revenue dollars being generated, and increased public assistance costs.
The study used 2015 as a base-case scenario, which saw an estimated $702.0 million in public assistance costs and roughly $70.0 million in a loss of tax revenue. In the study, it is projected that these numbers will only grow. In 2030, public assistance costs are expected to soar to $1.1 billion and lost revenue will come in at $106.0 million.
Even though retirement is something that would occur in the future, it is concerning for the state because more than two million Pennsylvanian residents lack retirement funding from employer-sponsored retirement plans. This, therefore, will result in more reliance on the state for funding.
Retirement Is an American Crisis
The state of Pennsylvania is not the only state facing a retirement crisis; it’s actually the entire country. There are a number of factors contributing to this issue, such as people living longer, population growth, tougher job market, and employer cutbacks.
People are living longer than ever before, which is great since there is more enjoyment of life. However, this also means that there is more money needed in retirement to pay for daily expenses. Many Americans do not have enough money to fund their own retirement because of living longer.
Picture this; you start your career in the 1970s. You’re told to retire once you reach the age of 65. At the time, you’d only need to save for 20 years of expenses in retirement (this means having enough money to live to the age of 85).
Nowadays, when retirement actually comes around, the new age of retirement is closer to 100. This means that you would need to save for an additional 15 years, which would create a shortfall of retirement funding. Unfortunately, many Americans are living in this dilemma of running out of money.
Previously, many Americans were better off when retiring because they were part of their employer’s pension plan. This put less strain on the individual when retirement came around because they had a guarantee that there would be continuous money received in retirement. In more recent years, many employers are reducing the amount given to their employees for retirement and some companies are eliminating such programs altogether.
Lastly, in order to save for retirement, there must be income earned through an employer. In today’s job market, it is difficult to find a steady, high-paying job. Many companies are looking to reduce their business cost as much as possible through automation, moving jobs offshore, or reducing headcount by increasing their employees’ job responsibility.
With all this combined, one thing to keep in mind is that the senior population is expected to grow at an accelerated rate because baby boomers are set to retire in the coming years. For instance, from 2015 to 2030, the population of Americans aged 65 years and over is expected to grow by roughly 60%. This puts further pressure on government budgets when dealing with the retirement crisis.
One example of how big this savings crisis is for retirement is that only 23% of baby boomers believe they are able to retire with their current savings balance. These would be Americans born between the 1940s to 1960s.
Conclusion on the Retirement Crisis
With the government funding expenses for retirees, it puts a major strain on the government financial system. This could lead to budget cuts in other areas of the economy such as education, child benefit programs, and subsidiaries for companies for job growth and investment. All this would impact the current generation, which supports the present and future economy of the country.
“Study finds $14.3 billion hit coming as Pa. residents lack retirement savings,” Pittsburgh Post-Gazette, January 26, 2018.
“America’s next retirement crisis could be that baby boomers are living too long,” Business Insider, November 16, 2017.
“An Aging World: 2015,” International Population Reports, March 2016.