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Low-Wage Work and the Coming Retirement Crisis

David Callahan

The case for raising the pay of low-wage workers usually focuses on the here and now: The biggest low road employers have plenty of profits to spare and sharing them more equitably with their workers would do a load of good, including for the economy as a whole by stimulating more spending and growth. But cast an eye out into the future and you'll see an equally compelling case for upping pay: To avoid an unprecedented poverty crisis among tomorrow's seniors. 

The seeds of that crisis have already been planted. A large slice of lower income Baby Boomers are fast heading toward retirement with few savings. But major policy changes now can stop things from getting even worse for the Gen Xers and Millennials still in their working prime.  

Before getting to solutions, consider how low-wage workers get whacked in multiple ways when it comes to retirement. 

First, they typically don't earn enough money to put away extra for later on. Quite the contrary: many borrow money to make ends meet and have debt as they approach retirement. Earlier this year, Demos and AARP published a report that found that "older households carried an average credit card balance of $8,278 in 2012."

Second, even those low-wage workers who are able to save typically lack access to good retirement vehicles like a 401(k) plan, since many employers don't offer such plans. 

Third, your Social Security payments are pegged to lifetime earnings, so if you don't make a lot of money now, you're not going to get decent benefits later. Which is to say that it's exactly those retirees who depend on Social Security most -- because they have no other savings -- who get the smallest checks. 

Fourth, low-wage workers are much less likely to work once they are in their sixties and beyond. While it's easy to continue sitting at a desk and working at a computer as an older person, it's harder to continue working at a warehouse or waiting tables or stocking shelves or doing landscaping. In other words, it's the older Americans who most need to continue earning money as seniors who are least able to do so. 

Fifth, lower income retirees are more likely to face crushing out-of-pocket healthcare expenses. They can't afford supplementary insurance policies that plug the gaps in Medicare and are more likely to suffer chronic health conditions, particularly diabetes. This problem is set to worsen in coming years as diabetes rates among seniors rise dramatically as subsequent, far more obsese generations retire. 

Okay, enough bad news. What can we do about all this? Well, the most important solution is to pay workers more now, and the push to raise wages needs to be understood, in part, as a push to reduce elderly poverty in coming decades. 

But it's also crucial that all workers have better options for saving for retirement. And there's some great news on this score coming from California this year: That state just enacted a law, the California Secure Choice Retirement Savings Program, creating a new savings option similar to that available for public employees for the 6 million-plus workers in that state who now don't have access to a 401(k) through work: 

Signed into law in September 2012, the Act will create a retirement savings program administered by the state for private sector workers who do not have access to accounts through their employers. The program is intended to be a sustainable, self-funding path to retirement security for California’s workers. Employees’ payroll contributions will be pooled into a trust. . . . 
One of the central features of the program is that it automatically enrolls all eligible employees, who are defined as private sector workers at firms of five or more employees that do not offer their own retirement accounts. 
This is yet another example of a state pushing an innovative solution to a problem that Washington can't or won't address. Will it avert the coming retirement crisis? No, because it doesn't address the problem of low-wage work that makes it so hard to save. But it's a big step in the right direction.