Can’t afford to invest in a 401 (k) or an IRA? Here is what to do


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If the income from your job doesn’t allow you to cover your immediate expenses while saving for the future, you are not alone.

A survey by Select and Dynata found that among those who are not currently investing for their retirement in a 401 (k), 403 (b) or IRA, the main reason is that they cannot afford it. A third of this group has a family income of less than $ 50,000 and 34% are adults between 35 and 44 years old.

“Not having additional funds available to invest in a retirement savings vehicle, such as a 401 (k) or an IRA, is a reality for many people,” said Chad Parks, Founder and CEO of Ubiquity Retirement + Savings, indicates Select. “They probably think every dollar of their income is already factored into their budget.”

But these adults, along with those in other age groups, have something to their advantage: the strong job market, says Ty Young, CEO of Ty J. Young Wealth Management, one of Atlanta’s largest heritage consulting firms.

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How a strong job market can help you save for retirement

“[Not being able to afford retirement saving] is a problem, but it’s one of the best times in history to have this problem because we are living in a time called the Great resignationYoung says. “It’s called the Great Resignation because people quit their jobs for a better one.”

Whether you find a ‘better’ job, as Young calls it, or stay in your current job, his goal is to take advantage of the tight job market, primarily when demand for employees is high and there is a need for more employees. has a lot of vacancies. “The job market for workers has never been better than it is now,” Young adds.

Bloomberg quotes that six in 10 employers (60%) say they have difficulty retaining their staff, compared with only 15% saying they had difficulties last year. In November, the unemployment rate plunged to 4.2%, Reuters reports, a 21-month low that signals a tightening labor market where workers have greater bargaining power. Not to mention that we are heading towards the most popular months of employment of the year: January and February.

You may want to consider finding a better paying opportunity elsewhere or lobbying for higher pay and better benefits at your current workplace. Without the budget available to contribute to a retirement plan, you are leaving many opportunities on the table, such as the tax benefits of making IRA contributions or obtaining a 401 (k) match from an employer.

4 more ideas if you can’t afford to invest in a 401 (k) or an IRA

When you consider the 35 to 44 age group in the Select and Dynata survey, it is easy to see how many put retirement savings on the back burner because of other financial obligations that may get in their way: a mortgage, child care, car payments and unpaid student loans.

But now is the time to make retirement savings a priority. Retirement is not that far away. In fact, in your 30s, you’re almost halfway through if you plan to retire at 67. In addition to taking advantage of the current job market, here are four other ideas (which don’t evoke the dreaded “take sides hustle”) if your current income prevents you from making regular contributions to retirement:

1. Use your deals

Any extra money you receive – a work bonus, holiday gift money, or a New Year’s tax refund – can go towards your retirement fund.

If you’re expecting a windfall, you can momentarily increase your 401 (k) contribution online to account for money withheld from your paycheck and deposited into your retirement account. IRAs make it easier to deposit exceptional money after the fact, because you can simply transfer the money, say a $ 1,000 work bonus, from your bank account to your brokerage account after it gets paid. If you are looking to open a new account, brokers like Charles Schwab, Fidelity Investments and robo-advisor Improvement each offers traditional and Roth IRAs that rank Select among the best.

2. Record this “bonus” paycheck

Employees paid bi-weekly should take note that there are two months of the year they receive three paychecks instead of the usual two. With a bi-weekly payroll schedule, you receive 26 paychecks per year, which is two months of having an extra paycheck: 12 months in a year x 2 paychecks per month = 24 paychecks. Put those two “bonus” paychecks in a retirement account.

3. Start small

Remember that save Something it’s better than not saving anything at all. Although setting aside a small amount of money may seem ineffective at first, compound interest causes that small amount to grow much more over long periods of time. The sooner you start saving, the sooner compound interest – earning you returns on your initial investment, more your investment earnings – can begin to work its magic.

The amount of this small amount depends on what you are able to contribute. Parks gives the example that if you manage to save $ 50 per week, you will have $ 2,600 per year of your own savings to contribute to a retirement account, which can be significantly increased if you qualify for tax. credits and deductions.

If you take the $ 50 per week suggested by Parks, that’s $ 200 in retirement savings per month. According to data from Select, a 25-year-old making aggressive investments that generate a 9% annual return would only need to invest an additional $ 40, or $ 240 per month, for 40 years to achieve status as a millionaire at the age of 65.

Investing your retirement savings in an S&P 500 index fund could be a good idea for younger people, because historically the S&P 500 average annual return hovers around 10%. Of course, past performance is no guarantee of future gains.

4. Optimize tax credits

Savings can be made by optimizing the tax credits available to you. Middle- and low-income taxpayers who contribute to an IRA or employer-sponsored retirement plan, such as a 401 (k), may be eligible for Saver Credit, which is money that can be reinvested in their retirement savings.

Much like a business matching an employee’s 401 (k) contributions, the savings loan is where the IRS will match 50%, 20%, or 10% of your retirement contribution, depending on your income. adjusted gross and your deposit status. The lower your income, the higher the match and the maximum credit you can claim gradually disappears as your income increases. Find out more about the savings loan on the IRS website.

“While you may think you can’t afford to save, you actually can’t afford to not to save or you’ll leave money on the table, ”Parks says.

At the end of the line

By using your windfall earnings, saving that “bonus” paycheck, starting small, and maximizing tax credits, you can start funding a retirement savings account.

“There’s no denying that in order to have enough money for retirement, you have to do your part,” Parks says. “It means withdrawing money from your paycheck.” On the bright side, however, you take that money and invest in the future.

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Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.


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