Past efforts to boost retirement savings of low-income household have not been successful, according to Penn Wharton, which just released its new illustrative plan to boost retirement for these households, designed to not burden employers with higher administrative costs or contributions.
The Penn Wharton Budget Model (PWBM) is a new policy created by the Wharton School of the University of Pennsylvania in response to policymaker questions that could create automatic retirement savings accounts for more than 56 million low-income Americans by 2030.
The plan is for the federal government to create personal individual investment accounts for qualifying individuals, based on Earned Income Tax Credit criteria, for three different variations:
- Small: 10% contribution rate of earned income; annual maximum contribution of $2,000; contributions are phased-out at a rate of 30% starting at $50,000 of earned income.
- Medium: 10% contribution rate of earned income; annual maximum contribution of $2,250; contributions are phased-out at a rate of 30% starting at $50,000 of earned income.
- Big: 10% contribution rate of earned income; annual maximum contribution of $2,500; contributions are phased-out at a rate of 30% starting at $50,000 of earned income.
Individuals could potentially have retirement savings of more than $200,000 each in automatic retirement savings accounts, according to the PWBM policy.
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