Saving for retirement is particularly difficult for workers whose salary is small. Many low-income workers have access to a workplace retirement account, and have simply less money to build a nest egg after paying their monthly bills. Here are some strategies to save for the future on a small salary.
[See 9 ways to pay for retirement].
Set up a direct deposit. Have a portion of every paycheck automatically deposited in a 401, IRA, savings or an investment account. "Deductions is one of the easiest ways for a worker to save,", said David John, a researcher at the Heritage Foundation. Start with as little as 1% of your earnings and you get raises, directing a portion of each in a pension or investment account.
Take advantage of tax benefits. Savings into a retirement account has the additional advantage of reducing your current or future taxes. Traditional 401 (k) s and IRAs give you a tax break of the year that make you a contribution, but income tax is due upon withdrawal. If you expect your income to grow significantly in the future, it may be smart to contribute after-tax dollars to a Roth IRA or Roth 401. Roth accounts you pay tax on your nest egg now while you are in a tax bracket of the bass, recalls, including earnings, will be non-taxable retirement.
The standby credit. There is a tax credit specifically for low-income workers who save for their retirement. If you contribute to a pension as an IRA or 401 account and your modified adjusted in 2011 the gross income is less than $28,250 ($56,500 for couples), you can perhaps claim credit from the previous day. The credit is worth reaching $1,000 for individuals and $2,000 for couples and can be used to reduce federal income tax pay you, but are not refundable.
Redirect your tax refund and tax relief. If you do not have your tax refund for immediate expenses or debts, consider saving a part of it for retirement. Workers are also currently a temporary break 2% tax on their contributions to social security in 2011. For someone who earns $30,000 a year, tax relief is a value of $600. Consider ordering that tax savings into a retirement account.
[See 6 ways to spend your social security payroll tax reduction].
Minimise investment costs. The fees and charges associated with an investment are deducted from your statements. "An IRA of costs to open the IRA it invoice annual, it loads the closing costs if you decide to change jobs, he attributed a trade commission if you trade." If you get a Fund of funds, as the target date Fund, you are charged for management fees and, secondly, the underlying mutual fund expenses, "explains Teresa Ghilarducci, Director of the Centre for analysis of economic policy at the New School for Social Research Schwartz." Avoid that many of these fees as possible and choose funds with low expense ratios will allow your nest egg to grow faster.
Delay retirement. The longer lifetimes means still more years of retirement, which should be funded. Workers without traditional pensions may not be able to retire at the same age their parents stopped working. "Report of the pension is an extremely powerful tool for those who are able to do so," explains Mark Iwry, Assistant Secretary for policy for retirement and health in the Department of the Treasury. "You need years more to win." You have fewer years of consumption as a pensioner. "More work does not mean that you will need to work indefinitely. "People are living longer, healthier and less of them are working in physically demanding jobs, says Barbara Butrica, associate researcher at the Urban Institute." "" Working a year, we found, raises retirement income by overall 9% and 16% for low income workers. ?
Learn more about social security. Social security payments are the most important source of income of pension for low-income workers. "Social security benefits are much more important for people with low income that private savings will probably never," said Butrica. The age when you decide to start your delivery can make a big difference in how much your monthly payments will be for the rest of your life. "Think about if you want to start this service of social security immediately when you touch 62, or if it is really more valuable for wait you until age 70, if you can do," said Iwry. The monthly payments increase for each year you delay claiming up to the age of 70.
[See 10 ways to increase your social security checks].
Search for a job with pension benefits many. Find a job that offers a traditional pension, a match important 401, or an incentive plan can significantly improve the security of your retirement. But only half of the active population has access to at work and workers pension low income are least likely to do so. "Approximately four in ten youth aged 25-29 Working work in jobs that don't offer pension plans," said Margery Austin Turner, Vice President for research at the Urban Institute. "Low-income workers are not accumulate assets that they will need for a secure retirement." When the employer contributes to a pension plan, you can generate a significant nest egg more quickly.
Not to spend your savings early. Once you start to build a nest egg, try to go just before retirement. "Many withdrawals from 401 (k) s and IRAs have been linked to the loss of employment and disability and investment sorts of things, such as house purchases, said Butrica." For these types of emergency situations you can sometimes operate your savings will go at the beginning without being struck with the typical 10% early withdrawal penalty. But early withdrawals also means that you will not have this money and valuable compound interest, it could generate in retirement. "I believe that we must encourage people to avoid unnecessarily soaking in their economies, before retirement," said Butrica. "Workers must constantly make major contributions to their accounts to accumulate savings." This will be very difficult for workers with low income to do. ?
Twitter: @ aiming2retire
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