John Crosby, the chairman of the Financial Planning Association of New Jersey, says the cost of living is something most of us don’t take into account when we retire.
According to AARP data, the average Social Security benefit for retirees is $19,000 per year in New Jersey. That’s $4,000 less than what’s needed to cover health care, food and utilities alone.
“People can’t only live on Social Security, and we find more and more people are only living on Social Security because they don’t have the appropriate savings when they get to retirement age,” said Sen. Joe Lagana.
Lagana’s bill — New Jersey Secure Choice Savings Program Act — would require private sector businesses with 25 or more employees to set up a retirement savings program if they don’t already offer one. The employee would be automatically enrolled to contribute 3 percent of their pay unless they opt out.
“All the employer has to do is a simple payroll deduction,” he said.
According to AARP, over 1.7 million New Jersey workers have no access to a retirement savings plan through their employers. That’s roughly 40 percent of the state’s workforce.
“By having it as an employee benefit or payroll deduction it’s a lot easier for people to save, other than to wait until tax season at the end of the year and come up with a lump sum to put into an IRA account,” Crosby said.
But Assemblyman Anthony Bucco Jr. says he worries that getting the program started will cost taxpayers money.
“Any time the state gets involved in trying to manage these things, it becomes very costly and we see many failures,” Bucco said.
Bucco says the program doesn’t provide enough of an incentive to potential retirees, like making their contributions tax free.
“New Jersey is one of only four states, I think, in the country that taxes people on their contributions to retirement accounts. So if these folks are troubled and have trouble making ends meet, and they can’t afford to make contributions to their retirement accounts, we have to do something to give them incentive to do that,” he said.
The bill allows for the governor to appoint a board to administer the program. That board would make decisions on what type of investment options would be offered and whether contributions would be tax free — pretax, post-tax or something else. Supporters of the bill say the idea is to get people thinking about retirement savings before they retire. The bill has passed both houses and awaits a signature from the governor.