Encouraging the Working Poor to Save for Retirement
Are you saving enough for retirement? It can be a struggle even for those of us who do not live paycheck to paycheck. For the working poor, the challenge must seem truly daunting. Yet, Social Security payouts average only a little more than the poverty line, and benefits seem far more likely to decline than to increase in the future. For those on the margins of poverty, putting money aside today may be critical to avoid a financial crisis in old age.
Should government step in to promote retirement savings by the working poor? Vada Lindsey thinks so. In a new paper on SSRN, she proposes reforms to the earned income tax credit that would push recipients to put a portion of their tax refunds into retirement savings.
Vada’s proposal has many intricacies, but the core features include an automatic allocation of ten percent of EITC benefits to a retirement plan, IRA, or other investment vehicle, plus a matching contribution from the government for additional savings beyond the automatic ten percent. EITC recipients could opt out, but the default position would be in favor of savings.
