OregonSaves Automatically Enrolls Oregon Workers in Roth IRAs

Photo credit: Loren Kerns, CC BY 2.0.

Here’s one more news item to be thankful for, I think—Oregon is now giving workers the opportunity to save for retirement through an automatic deduction program called OregonSaves.

Here’s a quick overview of how it works:

If you don’t want to watch the video, the tl;dw is that OregonSaves is offering retirement plans for people whose employers don’t offer retirement plans. Workers are automatically enrolled into OregonSaves, and 5 percent of their gross paycheck is automatically put into a Roth IRA, where they can choose between three different investment options: “capital preservation fund,” “target-date retirement fund,” and “growth fund.”

After the first year, OregonSaves ups the automatic withdrawals from 5 to 6 percent, and continues increasing those savings by 1 percentage point every year until the worker is saving 10 percent of their salary in their Roth IRA.

As the NYT reminds us, even maxing out a Roth every year won’t be enough for retirement:

Oregon’s plan caps the amount a worker can save at $5,500 a year, and $6,500 for those 50 and older, which means that even rigorous savers will need to set aside more than the state plan allows.

The NYT offers a thoughtful analysis of both the positive and negative aspects of the OregonSaves plan, but it doesn’t quite do the math on how the plan will actually work—so I will, using an example from their article:

In Portland, Mr. Huffstutter said the payroll deduction plan took the salon minimal time to set up and maintain, and fills a gap in the beauty industry, where salons like his are often too small to offer retirement plans.

“The stylists here have an average age of 28, and make about $48,000 annually, but retirement savings are not at all routine,” he said. “The plan helps close the loop and gives them an automatic option to be able to save starting at an early age.”

According to SmartAsset, a single person earning $48,000 in Oregon gets $4,000 gross per month but only $2,900 post-tax; a married person can expect $3,073 post-tax. In their first year with OregonSaves, these people will get $200 deducted from their paychecks each month, or $2,400 annually. In the fifth year, when OregonSaves takes out 10 percent, they’ll get $400 deducted from their paychecks each month, or $4,800 annually.

This isn’t a perfect example because these individuals might get raises over the next five years, but they might also get pay cuts or lose their jobs and have to find work at a lower salary—even as OregonSaves continues to take more money out of their paychecks. (Yes, they can opt out or change their payroll deductions.)

Depending on these individuals’ other expenses, getting $400 taken out of their paycheck every month could feel like a hardship, and even saving $4,800 annually won’t max out their Roth IRAs or fully fund their retirements. It’s better than nothing, but it’s also a reminder that saving 10 percent of your gross pay just for retirement—and you’ll want to save even more for emergency funds, vacations, weddings, etc. etc. etc.—still isn’t enough.

If you’d like a more optimistic perspective from someone who actually lives in Oregon, Lillian Karabaic has a good overview of the program—and an interview with Joel Metlan, OregonSaves’ Public Engagement Manager—at Oh My Dollar!

But I’ll ask you this: would you want to be part of a similar automatic deduction program?

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