... most low-income workers receive benefits from one or more government transfer programs. Because many government programs have means tests, low earners who build even modest savings could disqualify themselves for thousands of dollars in government benefits.

An Urban Institute analysis found that for a married couple with two children, increasing the household's liquid assets from below $1,000 to between $1,000 and $2,000 would reduce annual benefits from means-tested transfer programs by almost $3,000. IRAs generally count as liquid assets because they can be readily converted into cash (with a penalty), though states have some leeway on how to apply means testing.

There's another risk: once low earners see their take-home pay reduced via automatic enrollment, they may borrow to maintain their standard of living. Recent research found that when federal employees automatically enrolled in their 401(k)-type retirement plan, employee contributions indeed rose. But four years following auto-enrollment, there wasn't any statistically significant increase in those employees' net worth. While the researchers' data were incomplete, the results hinted that less-educated workers may have borrowed more via higher credit cards, auto or mortgage loans. State auto-IRA plans will enroll many more low-wage workers than the federal government plans, so states should investigate how these employees' total household finances react, not simply laud increases in retirement plan balances.

Does this mean states should abandon their auto-IRA plans? No. But they need to rethink the idea that everyone should be saving for retirement at all times of their lives, regardless of income. It just doesn't work that way.

So glad to see this coverage, finally. One of many examples of how the "conventional" financial advice and assumptions do not apply to the large and growing segment of the population that has fallen out of, or cannot attain "middle class" or better status.

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