(Un)ready for retirement: states face a costly future if their citizens fail to save enough for retirement.

• Author: Petrini, Anna
• Position: RETIREMENT - Cover story

Most Americans are not saving enough for retirement. The problem is especially severe among small-business employees, low-income workers and communities of color. On the brink of a national retirement security crisis, state lawmakers are stepping into the breach with a spectrum of innovative solutions.

Retirement planning experts have traditionally used the analogy of a three-legged stool to describe the common sources of retirement income: Social Security, employer-provided pensions and individual savings. But the stool has grown wobbly for many workers, particularly in the private sector. For one, fewer employers offer traditional pensions, which puts the onus on workers to save more themselves. Another issue is changing demographics--people are simply living longer and need to save more money as a result. A third concern: Just how secure is Social Security?

As state officials stare down the prospect of mounting costs if their citizens retire into poverty, they're looking carefully at how to boost retirement savings. Should they create and facilitate new retirement savings programs for private sector workers or encourage participation in existing plans?

One important consideration is how to take full advantage of the options the private financial services market already offers. It's a balancing act as legislators try to promote employee savings, limit burdens for employers, and manage legal and financial risks for their states.

"The bottom line is that, by most reasonable metrics, about half the population is not on a path toward a secure retirement," says Illinois Senator Daniel Biss (D). "And that differentiates this issue from almost any other in our discourse. We have very justified anxiety about costs of health care, about costs of college, about affordability of housing, about a whole variety of standard bread-and-butter middle-class issues. These anxieties are important and these problems are severe and require solutions. I don't think any of them have the situation where the median family is in serious trouble in the way that we see happening across the country on retirement.... It's an opportunity to help people on a scale that I think we rarely encounter as policymakers."

The Scope of a Looming Crisis

Roughly 10,000 baby boomers turn 65 each day. And less than a quarter of them, along with members of Generation X, feel confident they have enough savings to last throughout their retirement years, according to research from the Insured Retirement Institute. Another report, from the National Institute on Retirement Security, found that 3 in 4 Americans are highly anxious about their retirement outlook. The level of concern was consistent across gender, generational and economic lines.

Senator Todd Weiler (R) of Utah notes that not only do a lot of people retire with little savings, many retire with more debt than savings. "As a Republican, this alarms me because I know that if someone retires with insufficient funds, they're going to be looking to the government as a safety net."

These fears are not misplaced. According to AARP, half of American households risk financial insecurity in retirement, leaving them unable to afford basics like food, medicine and utilities. Many who have remained solidly middle class throughout their working lives may face financial hardship in their senior years.

About 80 percent of workers between ages 25 and 34, and 48 percent of workers age 45 or...