Whenever the topic of saving for retirement comes up, I am often met with statements similar to the following ” I don’t earn enough to save for retirement “, ” I’m waiting to get a better job before I start saving ” or ” I’ll play catch up when I earn more “, but saving for retirement on a small or low income is very possible.
“Saving for retirement on a small or low income is very possible.”
That being said, here are some suggestions on how to save for retirement if your income isn’t quite where you want it to be.
The best ways to save for retirement when you have a low income:
1. Start where you are with what you have & make incremental contributions to your retirement savings over time
Although you might be earning a lower income, you can start by contributing 1% of your salary to your retirement savings and then making 1% increments every quarter, every 6 months or each time your income increases. It’s a small amount and after taxes you probably won’t notice that much of a difference in your pay check but over the long term, you’ll be saving a substantial amount of money that can make all the difference.
2. Get the free money, AKA the match, your employer offers
If you work at an employer that offers a 401k or 403b etc and also offers a savings match – take it. So many people do not take advantage of their employer sponsored match and that’s a big mistake because it is essentially free money. If you are just getting started with saving for retirement, you can set an initial goal to contribute just enough money to get the match.
3. No 401k? Open an IRA
If you don’t have a 401k plan through your employer or are self employed, then you can set up a traditional and/or Roth IRA through your bank or via a brokerage firm. The saving maximums are lower than a 401k or 403b but you can still save a lot money over time, and given time and the power of compounding your money will have a chance to grow substantially.
As your income grows you can also open up an IRA in addition to your 401k to increase the amount of money you save towards retirement and further take advantage of the various tax benefits these account types offer.
4. Automate your savings
Make saving for retirement easier by making your deposits automatic. You can have the funds auto-debited from your pay check directly into your retirement savings account i.e. your IRA.
401K and 403b deposits are usually automatically pulled from your paycheck, however, if for some reason your deposits are not automated, make a payroll request to make it happen.
Automatic transfers take the stress out of savings and you’ll never forget to make a transfer again, plus, you won’t get the chance to overthink whether or not you should make the transfer or not.
Have an inconsistent income? Just not ready to automate? Then set reminders on your phone around each pay period reminding you to make those transfers to your retirement accounts!
Putting off retirement savings until you make more money? Not a great idea.
The biggest risk to not saving for retirement as soon as you can or waiting until you are earning more before you start saving, is not having enough money to retire on. This basically means that you could potentially have to work longer than you expected in your old age and/or have to rely on government assistance in order to survive.
By putting it off, you lose valuable time to take advantage of the power of compounding – the key to growing your money long term. So start with what you have now, no matter how small it might be – those small amounts will add up in a big way over the long term.