Low Income Workers Need Real-life Retirement Saving Solutions


Almost all the articles lamenting the sad state of retirement savings in America focus on the averages. The average annual income of savers… The average retirement account balance… The average retirement account balance by gender, age, income level... Not surprisingly, the solutions they propose to solve the “retirement savings crisis” are for the average person.

The advice typically goes something like this:

  • Create a budget or savings plan
  • Save more, spend less
  • Participate in your workplace retirement plan
  • Contribute enough to get the full employer match
  • Increase your savings overtime
This average advice is not very helpful for many workers, especially low-income workers. Fortunately, a few publications do provide specific advice to this subgroup of retirement savers. For example, U.S. News and World Report produces an annual article on how low-income households can save for retirement. The usual suspects are always on the report, like creating an emergency fund and making saving automatic. Which makes me wonder what the author’s definition of low-income is and if she or he spoke with any low-income people before coming up with these suggestions. However, there are items on the list that I really like and support. For example, according to the U.S. News and World Report annual list, low-income workers can increase their retirement savings by:

  • Saving all or part of their tax refund or annual bonus
  • Claim tax breaks when they do save for retirement (e.g., SAVER’s tax credit)
  • Delay retirement
  • Delay claiming Social Security benefits
  • Pay attention to plan fees
But with average annual pay increases (since we’re talking averages) around 3%, how realistic is even this advice rom U.S. News and World Report and others?

More Money And A Better Retirement Plan

Some financial writers make saving for retirement sound so easy. For them it is all about financial education, planning, budgeting and impulse control. Meanwhile, in the real world, low-income workers are seeing their piddling salary increases eaten up by inflation and health care costs. Sure they need some financial education and advice, but what they really need is more money and better retirement plans.

Granted, increasing a low-income worker’s compensation may not encourage her or him to save more for retirement, however, it might. But who said more compensation has to come in the form of cash compensation. Employers can provide non-matching retirement plan contributions to low-income workers by job title. They can accomplish this by offering a 401(k) profit sharing plan using the
new comparability allocation method.

More Real Retirement Savings Help For Low-income Workers

  • Require employers to offer a profit sharing retirement plan contribution
  • Require employers to provide low-income workers with individualized retirement savings estimates
  • Require employers to provide low-fee fund options and educate workers about these options
  • Support strengthening public programs, like Social Security and the Saver’s tax credit, for low-income workers and retirees

Low-income workers for the most part are not searching for tools and tips and other resources to help them save for retirement. Many don't think saving is even an option. Instead of treating these workers like the “average” worker, employers and their HR departments need to design retirement plans that address the real world these workers live in. First, they need more money so that they can have the option to save. Second, they need retirement plans designed to maximize their savings. Third, they need their employers and the retirement services industry and other financial types to stop acting like income doesn’t matter much when it comes to saving for retirement.
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