Saving for retirement on a part-time salary

Saving for retirement on a part-time salary

When Robin Giles asks women why they aren’t saving for retirement, they often say the same thing: They don’t make enough money.

“It’s hard to convince people who are just realizing that they have money to put into retirement savings,” said Ms. Giles, a certified financial planner in Katy, Texas. Depositing money in a retirement account, which can’t be touched without penalty until age 59½, is especially challenging for people living paycheck to paycheck.

Women often find themselves in this situation. Some people take time off from their careers to have children, and when they return to work, many become self-employed or take low-paying, part-time jobs – the majority of part-time workers in the United States 63 percent are women. Latest data from Bureau of Labor Statistics, As a result, women repeatedly earn less income than men And they have less access to employer-sponsored retirement plans.

According to a study by the United States, nearly two-thirds of workers in low-wage jobs are women, with Black, Native American, and Latino women particularly overrepresented compared to their share in the overall workforce. National Women’s Law Center, Some women take jobs like fitness-class instructor, crossing guard or Instacart shopper, or work in child care and housekeeping, Ms. Giles said, to give them the flexibility they need to care for their own children or aging parents. Could.

“But then they don’t earn a livable wage, and it’s very difficult to save for retirement when you feel like you’re working for pocket change,” she said.

In light of the benefits of flexibility, the issue of retirement savings has taken on an “extremely limited role” in women’s decision making about staying home with their children, according to one Survey of 1,586 mothers in 2022 Powered by YouGov, commissioned by TIAA and designed by economist Emily Oster. The survey revealed that thirty-three percent of women reported that they had “thought a lot” about how staying at home would affect their retirement savings, while about 20 percent said they had not thought about it.

Other research has found that half of all mothers in the United States have no retirement savings, as cited in a survey 2023 report From the Century Foundation, a think tank that studies economic and social issues. figures of census Bureau Show that approximately 34.5 million mothers are living with children under the age of 18.

Foundation member Laura Valle-Gutierrez said that because of the way the U.S. retirement system is structured, leaving the workforce for at least five years to care for a child could result in millions of dollars in lost earnings. . By 2023, caregivers lose an average of $237,000 in earnings over their lifetime urban institute studiesThe loss of retirement income from Social Security and employment-based plans is an estimated 20 percent of that total.

“We have a system of retirement that is completely linked to work, not just with pension plans but because Social Security income is tied to employment,” Ms. Valle-Gutierrez said. In general, women receive $5,000 less in annual Social Security benefits at retirement than men, she said.

Even if you work part-time, there are many ways to save for retirement, but it’s not easy to do, Ms. Giles said.

“You have to be a diligent saver, and preferably set up automatic contributions so you never see that money before it’s invested for your future,” she said. AARP Research found that Americans are 20 times more likely to save for retirement if contributions are taken automatically from their paychecks.

Crystal Cox tells her clients that it doesn’t matter how little they withdraw each month, even if it’s just $5 or $10. “Whatever amount you can save per month, you just have to start, because it builds habits,” said Ms. Cox, a certified financial planner and senior vice president of Wealthspire Advisors in Madison, Wisconsin.

To help her clients find a few extra dollars in their monthly budget, Ms. Cox analyzes six months of credit card and bank statements to find recurring expenses that can be prevented.

“A lot of people don’t know where their money is going,” he said.

Ms. Cox recently discovered that one of her clients, a 42-year-old woman who works in real estate, could cut her monthly expenses by $400 fairly painlessly. The customer was paying for several monthly subscriptions he never used, including Disney+, SiriusXM Radio, YouTube Music, and a gym membership. She didn’t even realize how much she was spending on impulse purchases at Target and Amazon, Ms. Cox said.

The client canceled all of his unused subscriptions and deleted the Amazon app from his phone. “Removing the app made a huge difference to their spending, because it’s so easy to think of a ‘need’ for something and then buy it with one click,” Ms Cox said.

The customer agreed to have money automatically deposited into his or her Roth Individual Retirement Account each month. “Although it may not seem like a lot, $400 a month for the rest of her working life really makes a big difference in her retirement,” Ms. Cox said. Ms. Cox said that assuming a 7 percent interest rate, a person could have $450,000 by age 69½.

Even a small amount of money can add up over time. Ms. Giles gave the example of purchasing a daily latte. (The much-maligned financial advice of skipping the morning coffee shop trip to save money works, she said.)

“It can be powerful when you show them the math and what they can save when you stretch it out over a month, six months, even 12 months,” Ms Giles said. ” For example, if you can save $6 a day, you’ll have an extra $180 at the end of the month and $2,160 at the end of the year – and that’s before interest.

Another way to find savings, Ms. Giles said, is to take a closer look at annual bills — like cellphone and utility bills and insurance policies for your home and car. Most people pay these invoices year after year, he said, without even asking what they are paying for.

“Call your insurance agent and ask to review the coverage — especially ask if there’s anything you can reduce, especially if any of your needs have changed,” she said.

Once you get extra money, it’s important to set it aside immediately, Ms. Giles said; She recommends having any savings automatically deducted from your paycheck and put into an IRA.

Often people open an IRA with good intentions, but then deplete it by not making monthly deposits, believing they will fund it in a lump sum at the end of the year, said Melody Evans, TIAA wealth management advisor. “But then other bills come, emergency needs come,” she said.

Mothers who take time off work to care for children or elderly parents should try to continue saving for retirement. For couples, if one spouse is working full-time and the couple files a joint federal income tax return, the non-working spouse can open an account and contribute to it. Spousal IRA, Ms. Giles said. In 2024, the annual contribution limit for Roth and traditional IRAs is $7,000.

Overall, it’s a good idea for women to set up their own savings accounts and not rely on their spouses to fund their retirement savings accounts, said Ms. Cox, who often works with those women. Those who are recently divorced or widowed and are struggling to understand their finances. “Having your own savings helps establish good money habits,” he said.

Often, couples think of employer-sponsored retirement plans as a benefit only for the working spouse, Ms. Evans said. She recommends viewing retirement benefits as a means to an end for both spouses, just as a couple views a working spouse’s health care benefits.

For example, one of Ms. Evans’ clients is a teacher who has access to a 403(b) retirement plan, which is a defined contribution plan offered by public schools and some tax-exempt organizations. Her husband is self-employed and does contractor work. Although he may earn a significant salary throughout the year, the couple never knows when he will receive a salary or how much money he will actually make.

If the wife were just considering her $60,000 salary, Ms. Evans said, she would probably plan to save about 7 percent ($4,200) for retirement. Instead, the client included her husband’s estimated salary in her calculations and plans to save more than 18 percent of her salary ($11,200) because he does not have access to the same type of low-cost retirement plan as she does. Does it.

If your spouse has an employer-sponsored retirement plan, consider whether you’re saving enough for one person or two people to retire, Ms. Evans said.

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