America being the land of instant gratification, its residents tend to save far less than their foreign counterparts do — when they save anything at all. As a result, millions of people are heading into retirement with little more than their Social Security benefits to sustain them. Fearful that many will wind up dependent on state aid to get by, California Sen. Kevin De Leon (D-Los Angeles) wants to create a state-run but privately insured pension program that prompts more workers to save for their dotage. Business groups are fighting the proposal, arguing that Californians already have plenty of ways to save for retirement. But if they're not availing themselves of those options, is it better to let them slip into poverty as the consequence of their imprudence, or to come up with a savings plan they will use?
Congress has created generous tax breaks for retirement plans, and the financial industry offers a dizzying variety of investment options. But studies show that the vast majority of American workers don't set aside any wages for retirement unless their employer encourages or the government compels them to do so. That spells trouble for the millions who work in small companies that don't offer pensions or 401(k) plans. According to a recent study, up to 8.4 million Californians, most of them low-wage workers, do not participate in a retirement plan beyond Social Security. And Social Security benefits are so limited — they replace about 40% of the average person's pre-retirement wages — that they leave one out of every 10 recipients in poverty.