California State Sen. Kevin De Leon, D-Los Angeles, is offering an innovative plan that will help solve that problem -- starting in his home state, a place where trends often start.
De Leon proposes to set up a voluntary and portable retirement savings plan that workers could move from one employer to the next. The California state treasurer's office would manage the program, setting the contribution rate at a minimum 3 percent, possibly more. The California Public Employees' Retirement System would manage the money conservatively. Unlike 401(k)s and other defined contribution plans, benefits would be guaranteed. How much would be based on how much a worker saves.
The plan would require employers with five or more workers to either enroll their employees in the savings program -- and deduct the contributions from paychecks -- or they could offer their own retirement plan. Self-employed workers and those employed in even smaller companies also could participate.
"This plan is universal, affordable and portable. It allows people to take personal responsibility for their own retirement at no cost to taxpayers," De Leon says.
It would help people like my sister-in-law, who is a hotel housekeeper in Florida. I did her taxes yesterday. She makes minimum wage -- $7.65 an hour -- or about $16,000 a year. When she reaches 66 in two years and qualifies for full Social Security, she plans to retire and live on her $900 a month check. If she had participated in a savings plan such as this, she might have another $60,000 or so to make life more comfortable.
With that money, she could buy an immediate annuity. At the rates quoted today by ImmediateAnnuities.com, she'd earn a guaranteed $350 a month. Added to her Social Security, her monthly income would be $1,250 per month or $15,000 a year, which is close enough to what she's making now. Not a princely sum, but she gets by.
You might reasonably ask, "Why buy an annuity?" The answer is that if she has this much savings, she will be disqualified from some state and federal poverty benefits such as help with Medicare Part B and D and food stamps. By locking up the money in an annuity, she probably will continue to be eligible for this extra assistance.
When you are as poor as she is, you have to take what you can get.