If the first wave of retiring baby boomers is a test of America's retirement system, the grade is mostly an 'F,' says Laura Tyson, former chair of the President's Council of Economic Advisers under President Clinton.

More than half of workers, and over 60 percent of low-income workers, may not be able to maintain their living standards after they stop working, Tyson, now a professor at the University of California, Berkeley, writes in an article for Project Syndicate.

Almost 60 percent of employed private-sector workers ages 25 to 64 lack employer retirement plans. In addition, most low-income workers lack retirement plans and are unlikely to participate if they have them.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Although generous tax incentives encourage retirement savings, they are poorly targeted and yield limited results, according to Tyson. Most incentives go to workers earning over $100,000 a year. The incentives cost the government almost $100 billion a year; but instead of prompting new savings, they cause high-income taxpayers to shift savings to tax-advantaged assets.

While President Obama proposes capping the tax deduction for retirement saving, "a more radical proposal would convert the tax deduction into a means-tested and refundable matching government contribution — deposited directly into a taxpayer’s individual retirement account (IRA)," Tyson writes.

"Taxpayers are more responsive to matching incentives than they are to tax incentives, because the former are easier to understand and more transparent."

Automatic enrollment, unless they opt out, has proven to be effective in boosting participation in employment plans. Still, many employers do not offer the plans, she notes.

Obama has proposed requiring employers not offering plans to offer automatic contributions to workers' IRAs through regular payroll deductions, she explains. "Matching government contributions should be used in lieu of, or in addition to, tax deductions to encourage low-income workers to participate."

California is evaluating a plan that would automatically enroll workers at small businesses not offering retirement plans. Workers would have their own accounts, but the assets would be pooled in a trust with a real return guaranteed by private insurance and paid out as an annuity. Accounts would be linked to workers, not employers, to ensure portability between jobs.

"The retirement crisis will have significant repercussions," Sen. Tom Harkins, D-Iowa, states in a Senate report on retirement savings. "As older Americans transition out of the workforce, either voluntarily or involuntarily, many will find that they cannot afford basic living expenses. They will be forced to make the difficult choice between putting food on the table and buying their medication."

Harkins, chairman of the Senate Committee on Health Education Labor and Pensions, proposed the Universal, Secure and Adaptable (USA) Retirement Funds, a privately run, hybrid pension plan that would offer the benefits of traditional pensions, but reduce the burden on employers. It would entail universal access through payroll withholding for those lacking retirement plans, and would be portable between jobs.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.