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Retirement Savings for Low Income Earners22 02 06 21  27
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We spend an enormous amount of time telling people about the advantages of opening an Individual Retirement Account (IRA). Either Roth or Traditional, the advantages are easy to understand to even the least economically educated person. We also suggest automating the investments and paying yourself first. The problem is that for people with little room to spare for retirement savings, starting out is a daunting task. It is way too easy to forget about the issue and hope for a better future – out of nothing at all. This is a very common issue, and the good news is that it has been researched, and answers have been found. If you can set aside $200 a month into an individual retirement account, I think your best option is exactly what Jonathan suggests on his entry: A good way to start is by funding yourself an tax-advantaged IRA. Fidelity has come out with a pretty decent product for this - their SimpleStart IRA. You just need to commit to contributing $200 a month ($2,400 a year) to the IRA, and you can avoid the $2,500 initial minimum investments of many of their funds. Also, as you are not paying any trade commissions and there are no annual maintenance fees, more of your money is going towards your investments.However, for most people, even setting aside $200 a month is a scary thought, specially when they have been living paycheck to paycheck and now they have to scale down on some items – when ether luxury or not, it is difficult. $50 a month may be all a person may be able to put towards retirement during a given month. USA Today identified good places to start with only $50 a month: Some funds will let you open an account for as little as $50, provided you agree to add $50 to your account each month. Selected American Shares (SLASX), for example, is a top fund with a low automatic investment plan. T. Rowe Price Equity Income (PRFDX) is another. You'll have to increase your contributions regularly. But $50 a month is a good start.Regardless of which vehicle you use, I strongly recommend you try to upgrade your monthly contributions as income or situations improve. $50 a month will not get you to a safe and comfortable retirement, but will get you into the savings habit. $200 a month is closer to helping you secure your retirement, but you should try even higher as your situation permits. For low income earners you should remember that there is an added benefit for funding your IRA, the Savers Credit. And don’t forget that although some IRA accounts require significant minimum investments, there are ways to come up with such funds. A very common one is to use a tax refund to open a Traditional IRA – it may even increase your refund if you do. Another one is to use money that you didn’t expected, like a Christmas bonus, wedding gifts in cash, or any other money that didn’t had a spending purpose already: because if you do not save it an invest it, it will find its way out of your pocket. Regardless of the vehicle you use, taking the first step of setting up your automatic investment plan may be the best thing you may have done in your life. |
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