The median retirement savings balance for older workers is only $15,000. SCEPA’s Policy Note, “Catch-Up Contributions: An Innovative Policy Proposal for Social Security,” outlines a new program within Social Security that would enable workers to purchase extra benefits. Catch-up contributions would default workers 50 and older into making an additional contribution of 3.1% of income to Social Security.
- Defaulting workers into Social Security catch-up contributions of 3.1% of earnings starting at age 50 would help bridge the gap between retirement savings and the amount needed to maintain pre-retirement living standards.
- The proposed program uses the existing structure of Social Security to target lifetime low earners, but it is attractive to all.
- It would not increase the Social Security deficit, but would somewhat strengthen the program’s financial health.
- Workers are willing to contribute more than 3.1% of earnings to participate in the program, regardless of income or gender.
- Low- and middle-income workers would earn additional benefits of 7% of pre-retirement income and higher income workers would earn 3-4%.
Catch-up contributions alone cannot solve the problem of inadequate retirement savings, but they mitigate systemic shortcomings of 401(k)- and IRA-based savings programs.