America’s Babies Are Now Retirement Investors—Now What?
For years, we’ve asked and been asked: “If you could wave a magic wand to fix America’s retirement system, what would happen?”
Without hesitation, our answer has consistently been: “We’d create universal access to automatic enrollment into portable retirement savings accounts.” Because that’s what is going to transform retirement savings for the 56 million Americans who lack a workplace plan—including the 17 million American gig or independent workers who wouldn’t have access to workplace plans even if they became universal. Expanding access to high quality retirement accounts, both inside and outside of the workplace, is an essential step toward putting low-income households on the path to a financially secure retirement.
Now that essential step may be here, in the unexpected form of the One Big Beautiful Bill Act (OBBBA). While it’s not magic, it could be a powerful tool to help millions begin building retirement security. But it’s going to be up to all of us in the ecosystem to turn that potential into real, lasting impact.
We’re talking specifically about Trump Accounts—early wealth building accounts that will be opened as traditional IRAs and funded with $1,000 for all American babies at birth during the pilot period of 2025-2028. The concept is simple, but the implementation is not. There’s still a lot we still don’t know about how these accounts will be operationalized and how people will engage with them over time. The behavioral side also raises big questions: How will someone interact with this account at age five, 10, or 20? Will the user experience grow with them?
We don’t know yet, because nothing like this has ever existed at scale in the U.S. The graphic below offers a high-level overview of what we do know, and we’re refining and reporting our understanding as we go.
So how do we make the magic happen? If we embrace Trump Accounts as an 18-year head start on building a retirement balance, how do we ensure that they work for everyone—especially low-income families?
Here’s the to-do list, in our view:
Ensure automation. Trump Accounts set a powerful precedent for universal access to a retirement savings account, with the potential to reach a meaningful number of the next generations of workers without a workplace plan. But people can’t use what they don’t have in hand. That’s why automation is key. The legislation gives the Treasury the ability—but not the obligation—to automatically enroll babies born between 2025 and 2028 into these accounts. That’s the real unlock, because we know from decades of experience in 401(k)s that automatic enrollment drives significantly higher participation rates and increased saving, especially for low income workers. In fact, Vanguard’s America Saves report found that automatic enrollment drove up participation by more than 70 percent for this group.
Design for portability and continuity. With Americans switching jobs more frequently, Trump Accounts offer a potential “home base” for the small, scattered 401(k) balances that today’s workers build (and often cash out) every few years. Trump Accounts could be a powerful tool to capture some portion of the $92 billion that’s cashed out annually through 401(k) pre-retirement leakage. The ecosystem should seize this opportunity to streamline account consolidation, support auto-portability, and simplify lifetime account management.
Create an easy on-ramp for the Saver’s Match. Launching in 2027, the Saver’s Match will provide a 50 percent federal match on contributions up to $1,000 annually for lower-income workers—so long as those contributions go into a qualified retirement plan, which includes workplace defined contribution plans and traditional (but not Roth) IRAs. The challenge? Of the 69 million who are eligible for the Saver’s Match, just 22 million have access to a workplace plan, according to the Employee Benefit Research Institute. And millions more are saving in a Roth IRA through the state auto-IRA programs. In other words, 47 million people would need to proactively open a traditional IRA to receive Saver’s Match funds. If made permanent after the pilot period, Trump Accounts could help solve this key implementation challenge. By automatically providing every child (read: future worker) in America with a traditional IRA, Trump Accounts expand access to the Saver’s Match. At the same time, channeling federal matching dollars into Trump Accounts creates another contribution stream for low-income households. Simply put: Trump Accounts give people a portable place to save and a place to receive the Saver’s Match.
Build an investment option that lasts a lifetime. More than 30 years of target date fund investing has taught us a lot about how to grow balances over time. The headline: Age-based, automated asset allocation works. Diversification—spreading investments across different asset classes like stocks and bonds—is not just for driving growth, but for managing downside risk and helping people stay invested through market ups and downs. That’s why we have questions about the current requirement that funds track a qualified index of U.S. equities. What happens if, when someone needs the money in their Trump Account—whether for college, retirement, or something in between—the U.S. stock market crashes? What a shame it would be if a program that’s been with you since birth fails you at the very moment you need it most.
Protect and educate new investors. Millions of new account holders will be brought into investing through Trump Accounts. This offers something profound: the chance to build investor identity from birth, helping individuals see themselves as part of the financial system, with a real stake in the country’s future and a sense that the country, in turn, is invested in them. That makes fiduciary protections, fee transparency, and basic investor education more critical than ever. The ecosystem must ensure that savers aren’t set up to fail. For example, while Trump Accounts include caps on investment management fees, it’s not yet clear whether those limits apply to other potential costs, such as recordkeeping or account servicing fees. Additionally, the legislation requires that investments be made in either mutual funds or ETFs. In a retail account model—which, as written, Trump Accounts are—that distinction matters. Parents (and eventually the children themselves) would need enough financial education to navigate the cost and tax implications of each option.
Strengthen the account structure. The legislation currently envisions Trump Accounts as retail accounts—one for each individual baby. But this approach risks compounding what we have dubbed “The $1,000 Problem”—a proliferation of low-balance accounts that are costly to administer, easily lost, and ultimately inefficient for both savers and providers. We’ve seen this across workplace plans, state auto-IRAs, and 529s, and, if left unchecked, Trump Accounts will be next on the list. Fortunately, the bill appears to give the Treasury Secretary the authority to establish a centralized, pooled account structure. In our view, this design shift has the potential to avoid this pitfall and significantly improve the economics for households and financial services providers alike.
While not a to-do, it’s important to also consider the potential ramifications to Social Security that policy like this could elicit. In past debates over universal savings solutions, some have proposed a false choice—suggesting that expanding private savings could justify cutting or replacing Social Security. That cannot happen. And it’s important to be clear about why: Social Security remains the backbone of retirement security in America, particularly for low- to moderate-income workers who rely on it as their primary or sole source of income during retirement. While Trump Accounts and other long-term savings innovations can help build wealth over time, they do not offer the guaranteed, inflation-protected income that Social Security provides. The choice ahead isn’t either/or; it’s both.
“If we get Trump Accounts right…that, in our estimation, would be the biggest innovation in retirement savings since the invention of the target date fund.”
If we get Trump Accounts right—if we follow through on the key priorities outlined here—they could represent a generational leap in retirement saving, giving people an extra 18 years to begin accumulating retirement savings, and in a lifelong, portable account, no less. And that, in our estimation, would be the biggest innovation in retirement savings since the invention of the target date fund.
Like most of the challenges we take on at the Aspen Institute Financial Security Program, realizing the full potential of Trump Accounts will require a broad coalition of retirement experts, industry leaders, policymakers, and advocates. And, yes, that means we’ll need your help to move this to-do list from concept to reality.
Above all, we see Trump Accounts as a hopeful signal that even in a divided political moment—even in an Act that would otherwise challenge the financial security of our most vulnerable Americans—momentum for long-term savings solutions can still prevail. Let’s build on that momentum together.
Disclaimer: This story is auto-aggregated by a computer program and has not been created or edited by wisewalletwizard. Publisher: Source link
