3 Underrated Retirement Saving Strategies for Low-Income Workers

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Having a lower income doesn’t mean you can’t build a solid nest egg. Read on to learn more. [[{“value”:”

Seniors who are forced to retire on Social Security alone often experience their share of financial stress. To avoid that later in life, it’s important to do what you can to build a solid nest egg. But that’s easier said than done when you don’t earn a very high income.

The good news, though, is that there are strategies you can employ as a low-income worker to boost your retirement savings. Here are three to consider using.

1. Snag your full employer 401(k) match

Vanguard reports that 95% of employer retirement plans come with some sort of matching contribution. Find out what your company’s 401(k) match entails, and then do your best to contribute enough money to your account to claim it in full. Not only can that money add to your balance, but you can also invest your employer contribution to grow that sum over time.

Let’s say you’re able to snag a $2,000 employer match this year. If you invest that money over the next 30 years and score an average annual 10% return, which is in line with the stock market’s long-term average, you’ll end up growing that $2,000 into almost $35,000.

2. Automate contributions to an IRA

If you don’t have access to a 401(k) plan through your job, worry not. As long as you have earned income, you qualify to make contributions to an individual retirement account (IRA).

Now, the nice thing about 401(k)s is that contributions are deducted from workers’ paychecks, so it’s easier to stay on track as a lower earner. But many IRAs allow you to set up automatic contributions from your checking account. So if you commit to automating even a small transfer each month, over time, it could add up to a lot of savings.

Let’s say you only manage to contribute $25 a month to your IRA. Well, if you do that over 40 years and your investments in that account generate an average annual 10% return, you’ll end up with about $133,000 in retirement savings. And that assumes you never increase your savings rate, which you may be able to do as your income increases.

Northwestern Mutual says that the average saver in their 60s has a nest egg worth $112,500 today. So if you were to end up with $133,000, you’d have more than the typical near- or current retiree today.

3. Take advantage of the Saver’s Credit

The Saver’s Credit is a tax break designed to make it easier for lower earners to save for retirement. For the 2023 tax year, you’re eligible for the Saver’s Credit if your adjusted gross income (AGI) does not exceed:

$73,000 for a married couple filing jointly$54,750 for a head of household$36,500 for a single tax-filer

Meanwhile, depending on your AGI, you can claim 10%, 20%, or 50% of your first $2,000 in retirement plan contributions. So your actual savings will amount to up to $200, $400, or $1,000, depending on the credit you qualify for. And to be clear, the credit applies to contributions to a traditional or Roth IRA or 401(k).

It’s definitely not easy to set money aside for retirement when your paycheck is barely large enough to cover your near-term expenses. But if you employ these strategies, you may find that you can bring a lot more money with you into retirement than expected.

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