There’s an old story — probably apocryphal — about an outlaw in the Wild West who was finally caught, brought to justice, and sentenced to be hanged. As he stood on the platform with the rope around his neck, he looked out at the crowd and said mournfully, “this will be a sore lesson to me.”

We make the same basic gallows mistake when we figure that poverty in old age will somehow make people save more during their working lives. If they had a time machine, or there were do-overs, or they lived multiple lives, that might work. But we only live one life. By the time we are old and broke, it is too late to wise up.

All of which is background to yet more news today about America’s retirement savings crisis, and a simple policy idea that would help every future American child and which will avoid this gallows fallacy — namely: baby bonds

First let’s start with the news. A fresh report points out what most of us know instinctively — that large numbers of Americans are going to live out their final decades in poverty because they have no, or almost no, retirement savings. In some cases (see above) this was because they behaved foolishly, or made honest mistakes, or both. But in many others it’s because they earned bupkis, and their ability to save much was almost nonexistent even if they tried. Not only that, but many of those earning bupkis don’t get any kind of company 401(k) plan, or match, or any other help to save even if they could.

“New data shows that in 2021, 69 million—or 55.5 percent—of workers lacked any kind of employer-provided retirement plan, a group made up disproportionately of low-income earners,” reports the Economic Innovation Group, citing data from the U.S. government. But among those in the bottom third of workers, earning $37,000 or less, that figure rises to 70%.

Only about 12 million of these 41 million workers, or three out of 10, even have a company retirement savings plan available to them. 

The figures are worse in some of the most liberal states in the U.S., where the political classes like to showcase their compassion. So the access rate is just 24% in California and Connecticut, 26% in New York, and 29% in Massachusetts. Florida, at 23%, also does terribly. By contrast Idaho, which is as conservative as it gets, is up at 47%.)

Improving “access” to company retirement savings plans is a worthy and urgent policy objective. Many states have launched auto-IRA plans in response, creating vehicles that will help retirement savings among workers who are excluded from company plans.

Conservative policy wonk Kevin Hassett and liberal counterpart Teresa Ghilarducci have teamed up to suggest replicating the federal government’s 401(k) equivalent, the Thrift Savings Plan, to lower income workers.

The problem with all this is that if you are working on $37,000 a year or less, the reason you aren’t saving loads for retirement isn’t simply that you don’t have a company 401(k). After all, you can in theory save $6,000 a year tax-deferred in an IRA anyway. The bigger problem is that you don’t earn enough money to save at all. This is why, although only 30% of low-income workers have “access” to a company retirement plan such as a 401(k), the EIG data also show that less than two-thirds of those workers who do have access even take advantage of it.

It’s simple enough for those who have saved for their retirement to shrug and say, like the man on the gallows: Let this be a sore lesson to you.

This is where a simple and cheap policy proposal comes in. Credit every American newborn baby with a $3,000 account. Call them Baby Bonds, but invest the accounts entirely in the stock market. Designate them for retirement only, to be converted to an annuity when — and only when — someone reaches 70.

At the moment, only about 75% of those who are born make it to 70. For the others, the money would go back into the pot for the next set of babies. 

There are 3.7 million babies born in America every year, and the average long-term return from stocks is estimated to be at least 5% above inflation. 

Simple math shows that this policy will cost taxpayers $9 billion a year, which is a rounding error in the federal budget, and will likely mean each American who makes 70 will have about $100,000 in retirement savings — as well as everything else they’ve managed to save through their own efforts. 

Today, the median net worth among those in the poorest 25% is $310. Yes, really. 

Conservatives may, reasonably, object to the very principle. My response is that $11 billion a year is a lot cheaper than the inevitable cost of providing extra welfare for the old and poor. And that this policy should apply to everyone, meaning that conservatives’ own children will benefit as well. (Oh, and conservatives tend to have more children than liberals.)

Finally: This policy is surely a very cheap way of ensuring that everyone in America has a stake in capitalism.

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