Significant retirement savings disparities between rural and urban workers remain largely overlooked, according to a new analysis released today by the Economic Innovation Group (EIG).
Living in a rural area reduces the likelihood of having a retirement plan by 13 percentage points
March 24 EIG Analysis
Rural workers only hold approximately half the retirement savings of their urban counterparts, the analysis found, resulting in a savings gap of nearly $55,000 between the two segments.
The new report also found living in a rural area reduces the likelihood of having a retirement plan by 13 percentage points, even when accounting for income, education, industry, and other factors. The data shows that 50% of Americans living in rural areas lack access to any retirement savings plan through their employer, compared to 41% in urban areas.
An even higher share—57%—lack savings plans with matching contributions from their employer, compared to 50% of urban workers.
The analysis relied on data from the Survey of Income and Program Participation (SIPP) published by the Census Bureau “to assess whether rural workers represent yet another group that has been left behind by the retirement system in the United States,” the March 24 paper states.
Income levels narrow the gap, but socioeconomic disparities persist. Among high-income workers, the difference in retirement plan access between rural and urban areas is small. But large gaps remain across age groups and education levels. Rural low-wage workers are disproportionately disadvantaged.
Digging deeper, the paper says 5.1 million rural workers are without access to an employer-based retirement plan, and 5.9 million don’t receive an employer match. “If rural workers had the same access rates as urban workers, nearly a million more rural workers would have access to a retirement plan,” authors Sarah Eckhardt and Jiaxin He write.
When looking at the savings gap, the analysis said rural workers have 44.7% less in their retirement accounts than the national average of $107,057 and roughly half of the urban worker’s average of $113,752. The contrast is stark even considering the difference in cost of living, the research found.
Rural workers are typically older than those living in urban areas, have lower incomes and education levels, are employed by smaller companies, and work in industries that offer fewer retirement benefits. “It is conceivable that the combination of these characteristics—rather than the fact of living in a rural area itself—might explain the bulk of the retirement access gap between Americans in urban and rural areas,” the authors write, adding that they still need to empirically test how much each of these variables matters.
The authors say the research demonstrates that living in a rural area is generally associated with having restricted access to retirement savings plans for many different kinds of workers. The effect is more acutely felt by young people, low-income workers, and employees at small firms.
EIG says RSAA could help
To address this problem, the EIG analysis says lawmakers can help close this gap for rural workers (and others being left out of the private retirement system) by adopting the bipartisan Retirement Savings for Americans Act (RSAA). The bill, opposed by the American Retirement Association as an unfair attack on the employer-sponsored retirement plan market, seeks to establish a new program called the American Worker Retirement Plan that makes workers who currently lack access to a workplace retirement account eligible for tax-advantaged retirement savings accounts modeled after the federal government’s Thrift Savings Plan.
These new retirement plans would be portable and allow workers to pause or increase contributions as needed. They also would provide a matching tax credit from the government for low-income workers, which is a primary point of contention for opponents of the bill who argue it amounts to unfair competition that would undermine the existing private retirement plan market.
“While this legislation would benefit workers everywhere, our findings suggest that the access and incentives provided by RSAA would disproportionately benefit rural workers,” the paper concludes.
2024 research from Morningstar found that if the RSAA were to become law, it would likely lead to worse retirement outcomes for most Millennial and Gen Z workers compared to maintaining the status quo, as median wealth at retirement age could decrease by as much as 20% for Gen Z workers and 12% for Millennial workers. The decline is attributed to anticipated reductions in employer-sponsored defined contribution plans and lower default contribution rates under the RSAA (3% default rate) compared to current workplace DC plan averages (7.4% average deferral rate as reported by Vanguard).
The RSAA was reintroduced in Congress in October 2023, by a bipartisan group of lawmakers, including Senators John Hickenlooper (D-CO) and Thom Tillis (R-NC), along with Representatives Lloyd Smucker (R-PA) and Terri Sewell (D-AL). The bill has been referred to the relevant congressional committees for further deliberation, and its progression will depend on legislative priorities and consensus among lawmakers.
Read the EIG’s new analysis, “Are Rural Americans left behind in the employer-based retirement savings system?” in its entirety at this link.
SEE ALSO:
• RSAA: Improved Plan Access, But Worse Overall Outcomes, Morningstar Retirement Finds
• AARP Endorses ‘Retirement Savings for Americans Act’ Opposed by ARA
• Too Many Low-Income Workers Lack Access to Retirement Plans: EIG
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
