As a progressive economist, I wrote a paper in 2021 with a generally conservative colleague, Kevin Hassett, who now heads the National Economic Council in the Trump White House. We agreed then The basic arithmetic of the American retirement crisis.. We still do it. That's why people like him and me can say: Trump's executive order establishing TrumpIRAs, signed last month, is simply the right move for American workers.
The American retirement system is not bad for everyone. It is broken in the lower half. A top executive earning $500,000 contributes the maximum $23,000 to a 401(k) and receives a 6% employer match of $30,000. Because those contributions are deducted at a rate of 37%, the IRS subsidizes another $8,510. In a single year, the tax code and employer together provide nearly $40,000 in retirement support for that executive. Meanwhile, a restaurant worker who makes $32,000 without a work plan receives zero.
The Urban Institute estimates that more than $400 billion in annual retirement tax spending flows disproportionately to higher-income households. That is not a welfare state. It is a State that subsidizes, for the people who need it least.
The human cost is not abstract. The United States has the highest senior poverty rate in the G7: 23%, according to Pensions at a glance of the Organization for Economic Cooperation and Development. Germany's rate is 9%. Canada's is 12%. The Netherlands has reduced old-age poverty to less than 3% through a universal pension combined with strong occupational plans. Americans are not the only unlucky ones. Among developed nations, Americans are the most unprotected.
Trump's executive order targets the most fundamental flaw in this system: access. Approximately 56 million American workers have no employer-sponsored retirement plan—no account to contribute to, no matching offering from their employers, no access to the capital markets that have created wealth for everyone else.
The order establishes a federal retirement account, TrumpIRA.gov, along with a $1,000 annual refundable government contribution and automatic enrollment. That last part is very important. Research Hassett and I conducted found that automatic enrollment combined with a government match substantially increases participation among low- and moderate-income workers. When saving is the default option and the government matches your first dollar, people save. A worker who earns $40,000 and contributes $1,000 a year and receives $1,000 equivalent for 40 years with a real return of 6%, retires with more than $310,000 today. Most of that is compound growth. Getting workers into the market early is the entire intervention.
The word “refundable” is equally important. In the past, a tax benefit known as the saver's credit was nonrefundable: Workers who owed no federal income taxes received nothing from it. A cash match deposited directly into an account works independently of tax liability. It works even for someone whose income is below the federal income tax minimum.
This order will not solve the retirement crisis. The Americans' Retirement Savings Act, currently before Congress, would create larger contributions and provide stronger structural support. Social Security faces an imminent financing deficit that no peripheral reform can hide. And the details of this executive order require follow-up by Congress.
But the scale of what is proposed should not be minimized. Getting 56 million workers into an account (with an actual federal contribution, automatic enrollment, and immediate effect) would be the largest expansion of retirement coverage since Social Security was created. That's not a topic of conversation. It's arithmetic.
I have spent my career arguing that most workers who do not have a union must bear market risk, longevity risk, and financial risk alone. No employer at your side. No government on your side. That is not an ideological complaint. It is an objective description of a system that was designed, through decades of incremental policy decisions, to reward people who already had advantages. It is long overdue to change that design.
Mathematics doesn't care who signs the order. And neither should the people who need it most.
Teresa Ghilarducci, professor of economics at the New School for Social Research, is the author of “Work, retire, repeat: the uncertainty of retirement in the new economy.”
