Even modest increases in the net worth of those who save the least for retirement would greatly improve retirement readiness and reduce government spending on public assistance programs, according to research conducted by La Follette School faculty member J. Michael Collins and three graduate students on behalf of AARP Wisconsin.
“The La Follette School is grateful that AARP Wisconsin and other organizations provide these type of learning opportunities for its students,” said Collins, an associate professor of public affairs and human ecology who oversaw the students’ work. “These projects allow students to apply the knowledge and skills they are learning in a real-world situation.”
Students conducting the research and writing the report were Matthew Burr, Genevieve Carter, and Jordan Krieger – all in the Master of Public Affairs program. AARP Wisconsin presented the report – The Case for Reducing Poverty Among Seniors: Encouraging Savings for Retirement by People in Wisconsin, Projected Reductions in Wisconsin State Expenditures – at one the Joint Finance Committee's 2017-19 state budget hearings.
The state’s growing population of people age 65-plus is ahead of the national trend and is expected to increase 60 percent between 2015 and 2030. Due to these steady increases in life expectancies, older Wisconsinites will require income and resources to last a significant number of years in retirement.
Yet, many people near retirement are unprepared to fund their retirement for this extended period of time. Social Security will not provide sufficient income in retirement, many people have little or no savings, and a large number of Wisconsin workers do not have any way to save for retirement at work.
Older adults who are at-risk of retiring poor may increasingly rely on government programs for support. However, this new research shows that there could be a dramatic reduction in government outlays with a minimal increase in individual savings. Key findings of the report include:
- If lower and moderate income households (up to $40,000/year) were to save 3 percent of their income through 2030, state expenditures in 2030 may decrease by more than $3.1 billion annually
- In 2015, the state of Wisconsin spent $1.2 billion on the four main programs assisting seniors – Medicaid, Homestead Tax Credit, Wisconsin Home Energy Assistance Program and Supplemental Security Income (SSI).
- In 2030, there will be 427,300 Wisconsin seniors at risk of retiring in poverty.
- Projected state expenditures on senior programs in 2030 are estimated at $4.7 billion annually.
- Increased household savings delays eligibility for government assistance programs. Even a one-year delay is expected to save the state of Wisconsin $966 million in 2030.
- If people currently ages 50 to 55 save 3 percent of their income until they retire, they will have an additional $18,408 to $39,676 in savings.
In a 2015 AARP survey of voters age 45-plus, nearly nine in 10 people said they wished they had saved more for retirement; nearly half said they don’t have any way to save through their workplace.
“We know that the majority of Wisconsinites are not confident about their retirement savings,” said AARP Wisconsin State Director Sam Wilson. “The solution is to help people save for their retirement, and all evidence points to the most effective way to do this, which is through a save-at-work plan through a payroll deduction.”
Wilson said the state of Wisconsin can enact policies that encourage people to create their own private retirement accounts at work.
“Not only will that help people build their own nest eggs, but it will save taxpayer dollars in the not-too-distant future,” she said. “All of this additional savings by workers would result in a significant decrease in state expenditures on elderly assistance programs because people would have retirement resources. That would be great news for them and for all of Wisconsin.”