With growing concerns about the solvency of Social Security, early retirement, and longer life span a fourth leg is being added to many plans.  This leg is continued employment.   And for many this fourth leg is not optional.  In fact, it may be the only leg they can count on when or if they retire. 

This unsettling future is not due to a future crash of the stock market, the collapse of Social Security or a plague of pension fund thieves.  The real reason many people will never be able to retire is that they never plan to retire.  This is especially true of wage earners with low incomes.

Consider for a moment the decision someone faces when choosing between low-wage-reported income and a low-wage-unreported income (underground economy).  The low-wage employment is a taxable income, whereas the underground economy job is never reported.  The unreported income job may even pay more than the minimum wage.  Reported income may negatively impact other income sources or support.  Given that someone making this choice needs more income, not less, the choice made is often the unreported income job.

By selecting the unreported income job, the short-term income benefits rob the person of retirement opportunities as well as other benefits.  The unreported income job obviously offers no pension.  That's one leg knocked off the stool.  At 14 percent of typical retirement income, a pension is the shortest leg of the three.  Pension plans are a cost efficient means of attracting and retaining employees; so this represents a real retirement option not taken or an opportunity cost.  Worker's contributions to pension funds are often matched by employers and can be tax deferred for the employee and tax deductible for the employer.  Unreported income jobs don't offer this.

The unreported income job knocks a second leg off right away.  You can only expect future Social Security benefits if you have paid into the system.  Not only is the unreported income job not reported to the Internal Revenue Service, Social Security never credits the worker for the employment either.  This decision is even more costly when you consider the other benefits that are lost.  The unreported income job will not provide income for dependents of the worker in case of the employee's death or disability.    Lastly, the unreported cash income won't provide the insurance coverage of Medicare.

That leaves only one traditional leg of this stool, personal savings and investments.  Personal savings and investments are still possible, even if a worker only has unreported cash income.  Of course, someday the IRS might want to know how someone with no income has money in savings or investments.  Given that concern and the fact that it's just pain hard to save on a low income, this is a very unstable leg.  Savings and investing may still be hard if the worker chooses instead to take a job with reported income, but it won't get the IRS interested.   If just $50 can be saved and invested every month for 30 years with an average annual return of 8 percent, approximately $75,000 would be available for retirement.

The unreported income job also takes away the possibility of the numerous tax credits offered working families with a lower income.  Consider also the problems that unreported income employment creates for demonstrating employment histories and credit applications.  Buying a home is a sound part of many retirement plans.  Mortgages are usually based on income and credit history.  The unreported income job doesn't support either of these.

The unreported income job ultimately means that retirement may never happen.  Pensions, Social Security, personal savings and investments, however, are all possible at lower wage employment.

Retirement planning is not only for the wealthy.  It's for all workers who want to retire.