Saving for retirement with part-time wages: the challenges for women

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

“It’s hard to convince people who are just getting by to feel like they have money to save for retirement,” says Ms. Giles, a certified financial planner in Katy, Texas. Putting money in a retirement account that cannot be touched until age 59.5 without penalty is particularly intimidating for people who live paycheck to paycheck.

Women often find themselves in this position. Some take a break from their careers to have children, and when they return to work, many are self-employed or take part-time jobs with lower wages. According to figures, 63 percent of part-time workers in the United States are women. the latest data from the Labor Statistics Bureau. As a result, women are common earn less income than men and have less access to an employer-sponsored retirement plan.

Nearly two-thirds of workers in low-paid jobs are women, with black, Native American and Latin American women in particular overrepresented compared to their share of the total workforce, a study by the National Center for Women’s Law. Some women take jobs as fitness instructors, cross guards or Instacart shoppers, or do babysitting and housework, to get the flexibility they need to care for their children or elderly parents, Ms. Giles said.

“But then they’re not making a living wage, and it’s very difficult to save for retirement when you feel like you have to work for pocket change,” she said.

In light of the benefits of flexibility, the issue of retirement savings has played an “extremely limited role” in women’s decisions about staying home with their children, a study has found. 2022 survey among 1,586 mothers conducted by YouGov, commissioned by TIAA and designed by economist Emily Oster. Thirty-three percent of women said they “think a lot” about the effect staying home would have on their retirement savings, while almost 20 percent said they hadn’t thought about it, the survey found.

Other research has found that half of all mothers in the United States have no retirement savings, according to a study cited in a Report 2023 from the Century Foundation, a think tank that studies economic and social issues. Figures from the Census Bureau shows that there are approximately 34.5 million mothers with children under the age of 18.

Leaving the workforce for just five years to care for a child can result in millions of dollars in lost earnings because of the way the U.S. retirement system is structured, said Laura Valle-Gutierrez, a fellow at the foundation. According to a 2023 study, caregivers lose an average of $237,000 in income over their lifetime. Study by the Urban Institutewith lost retirement income from Social Security and employment-based plans accounting for an estimated 20 percent of that total.

“We have a pension system that is fully linked to work, not only with pension schemes, but also because social security income is linked to employment,” Ms Valle-Gutierrez said. Women generally receive $5,000 less in annual Social Security benefits at retirement than men, she said.

Strategies for saving

There are ways to save for retirement even if you work part-time, but it’s not easy, says Ms Giles.

“You need to be a diligent saver and ideally set up automatic contributions so you never see that money until it’s invested in your future,” she said. AARP research found that Americans are 20 times more likely to save for retirement if contributions are automatically deducted from a paycheck.

Crystal Cox tells her clients that it doesn’t matter how little money they put aside each month, even if it’s only $5 or $10. “Whatever amount you can save per month, you should just start doing it because it creates the habit,” says Ms. Cox, a certified financial planner and senior vice president at Wealthspire Advisors in Madison, Wis.

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 cut.

“So many people don’t know where their money goes,” she said.

Ms. Cox recently learned that one of her clients, a 42-year-old woman who works in the real estate industry, was able to reduce her monthly expenses by $400 quite painlessly. The customer paid for several monthly subscriptions that she never used, including Disney+, SiriusXM radio, YouTube Music and a gym membership. She also didn’t realize how much she was spending on impulse purchases at Target and Amazon, Ms. Cox said.

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

The client agreed to automatically deposit the money into her individual Roth retirement account each month. “While that may not seem like much, $400 a month for the rest of her working life actually translates into a huge difference in her pension,” Ms Cox said. Assuming an interest rate of 7 percent, a person could have $450,000 at age 69.5, Ms. Cox said.

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

“It can be powerful if you show them the math and what they can save if you extend it for a month, six months or even 12 months,” Ms Giles said. For example, if you could save $6 per day, you would 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 is to take a closer look at annual bills, such as mobile phone and utility bills and insurance policies for your home and car, Ms Giles said. Most people pay these bills year after year without asking what they’re paying for, she said.

“Call your insurance agent and ask to review coverage — ask specifically if there is anything you can cut back on, especially if any of your needs have changed,” she said.

Once you find extra money, it’s important to put it aside immediately, Ms. Giles said; she recommends automatically deducting any found savings from your paycheck and placing them in an IRA

Too often, people open an IRA with the best intentions, but then underfund it by not making monthly deposits, believing they will fund the IRA in one go at the end of the year, says Melody Evans, wealth management consultant at TIAA. “But then other bills come along, there are urgent needs,” she said.

Mothers or caregivers who take time off work to care for a child or elderly parent should try to continue saving for retirement. For couples: If one spouse works full-time and the couple files a joint income tax return, the non-working spouse can file a spouse IRA, said Mrs. Giles. In 2024, the annual contribution limit for Roth and traditional IRAs will be $7,000.

Overall, it’s a good idea for women to set up their own savings accounts and not rely on their husbands to fund their retirement savings accounts, said Ms. Cox, who often works with women who have recently been divorced or widowed and are struggling have to understand their meaning. of their finances. “Having your own savings helps develop good money habits,” she said.

Maximize your contributions

Too often, couples view employer-sponsored retirement plans as a benefit that only benefits the working spouse, Ms. Evans says. She recommends viewing retirement benefits as a resource for both spouses, just as a couple would view the health care benefits of a working spouse.

For example, one of Ms. Evans’ clients is a teacher with access to a 403(b) retirement plan, a defined contribution plan offered by public schools and certain tax-exempt organizations. Her husband is self-employed and does contract work. Although he can earn a significant salary over the course of the year, the couple never knows exactly when he will get a paycheck or exactly how much money he will make.

If the woman were to consider only her own $60,000 salary, she would likely plan to save about 7 percent ($4,200) for retirement, Ms. Evans said. Instead, the client has factored her husband’s expected salary into 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.

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