IT'S LUNCHTIME AT A MCDONALD'S IN COLLEGE PARK, Maryland, and William Pratt is bent over a mop, moving it slowly across the floor between bustling customers. Later he wipes off dining tables, carries trash to an outside Dumpster, washes dishes, and scrubs the toilets, sinks, and floor in the men's restroom. With white hair at his temples and a balding head, Pratt looks like anyone's grandfather. He is 71 years old.
To get to work, Pratt takes a bus from the boarding house where he lives alone. Rent is only $140 a month, but even so, he's a month behind in his payments. He eats mostly peanut butter and bread washed down with coffee. A few of his teeth are missing because he can't afford to go to a dentist, and he owes the doctor money for his last visit. His retirement income: a Social Security check that works out to about $100 per week. He has no savings.
"I can't retire," he says. "I have to work" Pratt's story is going to become more familiar very soon. For more than 30 million low-wage workers like him, the day they reach retirement age will be just another day at the office-cleaning it, guarding it, or washing dishes in its cafeteria. This is not the dignified retirement after a long life of honest work depicted in such movies as On Golden Pond. In fact, for more and more Americans, it's no retirement at all.
Of the 36.3 million Americans over age 65 today, 3.6 million, or 10 percent, live below the federal poverty level for a single-person household of $9,570 in annual income. The poverty rates for women and minorities are double that or worse. Unmarried women living alone have a rate of 20 percent. (Many women earn less than men during their lives and work part time or leave the work force intermittently to attend to family responsibilities, and are thus less likely to participate in pension plans.) In 2004, nearly one-quarter of elderly African Americans and one-fifth of elderly Hispanics lived in poverty. And these numbers are calculated according to the federal government's poverty line figure, which the Economic Policy Institute, a nonprofit think tank, says is a gross underestimate of what is actually required for a person to get by. It's not surprising that the Bureau of Labor Statistics reports that 5.2 million Americans over 65 are still working.
The U.S. retirement system has been compared to a three-legged stool, each leg essential: Social Security first, of course; then private pensions from employers; then private savings. At the moment, two of these legs are collapsing.
During the postwar economic boom of the 1950s, companies competing for workers and responding to union demands for secure retirement began to offer private pension plans. Since 1970, the average participation rate in such plans has hovered around 50 percent of the work force. But that number is misleading. Employers decide whether they will provide private pension plans and who will get them. The resulting choices have heavily skewed coverage toward workers with the highest incomes.
The Congressional Research Service reports that 75 percent of workers in the highest quartile of income are offered a pension plan and nearly all of those participate. Low-wage workers, who make around $9 per hour (the official poverty level) or less, are about half as likely to be offered a pension plan. They are also the least likely of all workers to take part in a private plan. CBS says that of workers earning in the lowest fourth of the income range, only 41 percent are offered a private retirement plan and only 29 percent participate. In other words, the workers least likely to have other resources are also those least likely to have a pension. These low-wage workers also can't afford to contribute to independent retirement accounts--which confer tax advantages and aren't dependent upon employment. Only eight percent of families with incomes below $20,000 own an IRA.
For these workers, the situation is worsening. …