Question: What are some retirement options for 'the rest of us?'

Are you ready for retirement?

I never see this topic addressed: What are the retirement options available to the huge percentage of the working population who didn't ever make a living wage, whose daily living expenses even with roommates and scrimping very hard indeed seldom met monthly living expenses much less leave anything to save? And please do not trot out that old cliche about giving up fancy coffee drinks -- those of us who do not even make a living wage are drinking whatever is on sale at Walmart, not purveyed by Starbucks. All the experts want to do is talk to people who make a lot of money -- about their savings, investments and golden retirements. Marketplace Money's experts do need to understand that a very large percentage of working Americans simply do not have these assets but DO face the prospect of a grim retirement. Thank you!

Response:

The most disturbing data on the private retirement savings front is this: Only 42 percent of private sector workers ages 25 to 64 have any pension coverage in their current job, a result that translates into more than one-third of households with no pension coverage at all during their entire work lives, according to calculations by scholars at Boston College’s Center for Retirement Research.

The “pension plan” for these households is Social Security. That’s why for most low-and middle-income families the most important retirement decision doesn’t involve stocks, bonds, asset allocation or required minimum distributions. What matters is Social Security benefits. In other words, how long they will keep working before filing. The reason is that even working one more year past the full retirement age for Social Security boosts annual income by 8 percent.

The impact of waiting to take Social Security is especially powerful for older low-wage workers. The typical worker with an average salary of $30,000 can nearly double his or her annual retirement income from Social Security by staying on the job to age 70 rather than retiring and collecting benefits starting at 62. (You can learn more about the two worlds of personal finance from this paper given at a conference by Eugene Steuerle and Robert Lerman: Two Worlds of Personal Finance: Implications for Promoting the Economic Well-Being of Low-and Moderate Income Families. At the same conference, I gave a paper on the Two Universes of Financial Literacy.)

Of course, many low-wage workers aren’t able to work that long, but it’s important for those who can to know that working longer will improve their retirement income.

Even if a low-income worker files for Social Security benefits, say, starting at 62 because they need the income, they can still earn some money before the government clips their benefit with the so-called “earnings test.” Filing for Social Security before the “normal retirement age” (between 65 and 67 now, depending on when the filer was born), $1 will be deducted from benefits for every $2 earned above the annual limit, which is $15,120 in 2013. Still, bringing in an additional $15,000 is a big help for anyone under pressure to supplement their income.

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