Poor
people would save more money if they could.
So
concludes a new study that found that only 12 percent of low-income older
Americans put money in a 401(k) or other retirement plan. The research, from Boston
College's Center for Retirement Research, looked at people who
were between 50 and 58 years old and had household incomes of three times the
poverty line. In 2010 that was less than $36,357 for one person and less than
$46,800 for two people.
The chief
differences between the low-income workers who participate in a retirement plan
and those who don't are education and the size of the company they work for. Of
those who are saving for retirement, 17.4 percent hadn't graduated high school,
16 percent had graduated from college and 76 percent work for large companies.
Among those who don't participate, 34 percent hadn't graduated from college, 8
percent had graduated from college and 43 percent work for large companies,
while 40 percent worked for small companies.
Currently,
about half of U.S. private sector workers don't
participate in a retirement plan and
most of them have lower incomes. The low participation rate is a growing
concern because of the widespread shortfall in private savings in the U.S. and
modest Social Security benefits for most retirees.
As the
report notes, "A failure to sign up can't be blamed for the dismal savings
rate of this low-income group. Instead, the problem is that many never get the
chance."
There
are four major reasons poor people approaching retirement struggle to save,
according to the researchers:
- Lack of employment: Only 42 percent of low-income older people
are employed at any given time.
- Lack of access: When they are employed, 66 percent work for
employers that don't offer a retirement savings plan.
- Lack of eligibility: Many low-income people work several
part-time jobs, and many employers offer a retirement plan only to full-time
employees.
- Lack of knowledge: Many workers don't know they have to enroll
in a retirement plan.
The
study's authors suggest the best solution would be to require employers to
offer a retirement savings plan to workers who aren't covered and then
automatically enroll them. Yet even this best-case scenario would raise
low-income participation to only 42 percent.
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