(Bloomberg View) — America’s middle-class workers have plenty to worry about — but for many, the biggest anxiety is what happens when they are workers no longer. Many will reach retirement only to find they have saved too little to live comfortably. Some will choose to postpone their retirement; others may not have that option.
The rapid and near-total disappearance of defined-benefit pensions has left many U.S. workers unprepared. Almost one-third of all workers have no savings at all. Those who do save don’t save much. Median household retirement savings for people aged 55 to 64 in 2013 amounted to $14,500. Consider that the average 65-year-old in the U.S. can expect to live almost 20 more years.
What about Social Security? For many retirees, it isn’t enough to rely on. The average monthly payment is only about $1,300. Beefing up those benefits won’t be easy. Fiscal pressure, if anything, pushes the other way. There’s a good case for reforming the system, to make the taxes that pay for it less regressive and to tilt its benefits more in the direction of the less well-off. But politically, that’s a tall order. What else can be done?
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Encourage people of ordinary means to save more. Promoting employer-based retirement-saving plans would be a good place to start. Almost 50 percent of workers enrolled in such plans have saved $50,000 or more. Only 1 in 20 workers not enrolled in a savings plan have saved that much — and about half the workforce isn’t in a job-based plan.
At the moment, access to retirement-saving plans varies from job to job. Fewer than 1 in 5 part-time or low-wage workers take part in a plan through their employer. In small companies (those with fewer than 50 workers) the participation rate is 32 percent. To improve these numbers, workers in firms without a plan should be offered a public alternative. And all workers not in a plan — the roughly 41 million private-sector workers who currently lack access, and the 20 million who have it but don’t use it — need a gentle push to enroll.
Congress or the states should set up tax-favored individual retirement accounts for workers without access to a job-based plan and tell companies to enroll employees automatically. Workers could still decide not to enroll, but they would have to deliberately opt out. Illinois is setting up a program like this, to start in 2017. President Barack Obama has proposed a similar approach. Under the president’s plan, the cost of the tax relief for saving by people on low incomes would be financed by limiting tax preferences for saving by the better off.