For Workers Without Retirement Savings, State-Run I.R.A.s Can Pay Off

A new breed of state-based savings accounts can help workers prepare for retirement, in part by allowing them to push back the time when they file for Social Security payments, a new analysis suggests.

Half of all states have considered plans to offer automatic individual retirement accounts, and at least five (California, Connecticut, Illinois, Maryland and Oregon) have begun offering them or have taken steps toward doing so. The plans vary in their details but, in general, are for workers at private-sector employers that don’t offer retirement plans. Those workers are automatically enrolled in the state I.R.A. program and have contributions withdrawn from their paychecks, although they can choose to opt out or change their contribution.

Many people think they must start receiving Social Security as soon as they retire, but the two steps don’t have to be done simultaneously. People can start claiming their federal benefits at age 62, but waiting at least a year or two to collect means their monthly payments will be larger because of the way the federal program is structured.

Those enrolled in the new state-sponsored accounts could, instead, use that money to temporarily cover their expenses after they retire, allowing them to delay claiming their Social Security benefits for a year or more, the report from the Pew Charitable Trusts said.

Since many people lack adequate retirement savings or traditional fixed pensions, the idea of delaying Social Security payments to receive bigger checks is “getting traction,” said Alison Shelton, senior research officer in Pew’s retirement project.

Some workers may be unable to delay claiming benefits past age 62, if they are in poor health or unemployed. But others simply may be reluctant to postpone the benefits because they lack savings. State-based individual retirement accounts that automatically enroll workers who don’t have retirement benefits through their employers can help meet that need, Pew’s report said. Workers can delay claiming their federal benefits, and instead withdraw an amount equal to what their monthly benefit would be from their so-called auto-I.R.A.

For example, if a worker retiring at 62 would get $700 a month in benefits, but had $8,400 in a state-based auto-I.R.A., the worker could wait a year to claim the benefit and instead withdraw $700 a month from the retirement account. The monthly benefit a year later, when the worker was 63, would climb to about $750.

The approach can especially benefit younger, minority and lower-income workers, who are less likely to have job-based retirement plans, Pew said.

Under a simulation run by the Social Security Administration at Pew’s request, Pew found that if workers contributed 3 percent of their income to a state-run auto-I.R.A. for 31 years, starting in 2019, nearly 40 percent of them could delay Social Security by a year or more. (The model accounted for workers entering and leaving the program, and for older workers who would contribute for fewer years.)

States have been pursuing the plans even though Congress has scaled back rules meant to encourage their creation.

Oregon, for instance, completed a test of its OregonSaves program last year, and began expanding it statewide in January. As of mid-April, more than 600 employers had registered for the program, and more than 31,000 employees — more than three-quarters of those eligible — were enrolled, with about 10,000 making contributions, Oregon officials said.

New York recently said it was considering an auto-I.R.A. program, with plans to offer it in two years.

Here are some questions and answers about state-based auto-I.R.A.s and Social Security:

If I am automatically enrolled in a state-based I.R.A., can I drop out if I choose?

Yes. In general, the plans automatically enroll eligible employees and set payroll contributions at a fixed percentage — say, 5 percent. But workers can opt out of the programs or reduce the amount withdrawn from their paychecks, at any time.

How do I determine my “normal” retirement age for Social Security benefits?

Your normal retirement age — the age at which you receive full federal benefits — depends on the year in which you were born. If you were born in 1960 or later, your full retirement age is 67.

How early can I claim Social Security retirement benefits?

The earliest age to claim retirement benefits under Social Security is 62, but you generally will receive a significantly reduced monthly payment. Someone who would receive $1,000 a month at a normal retirement age of 67, for instance, would receive $700 at age 62 — a reduction of 30 percent, according to Pew’s report.