Can You Retire Comfortably if You Only Work a Part-Time Job?
Working part time is nothing new, but the gig economy makes it more attractive than ever to take a high-paying hourly job. Rather than toiling in a single full-time job, online employment platforms make it possible to string together a number of part-time positions for a career that features flexible hours and expanded free time.
However, part-time employment has downsides when it comes to retirement. While full-time workers can receive enticing perks like retirement plans and health insurance, gig workers and others with part-time hours may be solely responsible for their own savings and benefits. That can make it difficult to prepare for the retirement lifestyle you want, especially if you only work a single part-time job.
“I’m going to tell you as a retirement planner … it is not possible for most people,” says Wendy Terrill, owner of retirement planning firm Assurance & Guarantee in Burlington, North Carolina.
Still, for those who are willing to work more than one part-time job, commit to putting money aside in a retirement fund and make smart choices about insurance and benefits, retiring comfortably is doable. “It depends on what you define as comfortable and what you’re willing to give up (to get there),” says Corbin Blackwell, a certified financial planner with Betterment, an online financial firm offering retirement accounts and other services. Following these additional strategies below can help part-time workers be better prepared for retirement.
[SEE: 10 Companies Offering Health Insurance to Part-Time Workers.]
Advantages of Full-Time Work
A part-time worker can combine several positions to match the income of a full-time worker, but there are other benefits that aren’t as easily replicated. One of those benefits is employer contributions to a retirement plan.
“Most people rely on their employer to take out a certain percentage of pay (for retirement),” Terrill says. Many companies offer a 401(k) retirement plan and will match employee contributions up to a certain percentage. That arrangement gives full-time staff an advantage over part-time workers who have to open and fund retirement accounts by themselves.
The SECURE Act of 2019 does expand access to 401(k) plans for part-time employees. Under the law, those who work 500 to 999 hours for three consecutive years are eligible to make elective deferrals to a company plan. However, the tracking period for this provision of the law doesn’t start until Dec. 31, 2020, which means that it won’t benefit part-time workers until 2024.
Another perk of full-time work is benefits, such as health insurance, life insurance and disability insurance. Some large employers may also negotiate reduced gym membership prices, retail discounts and other perks on behalf of their workers. All of these benefits help full-time workers reduce out-of-pocket costs and free up cash for retirement savings. Meanwhile, part-time workers don’t typically have employer-provided benefits.
How Part-Time Workers Can Compensate
The basics of planning for retirement are the same for both full-time and part-time workers. As a general rule of thumb, that means planning to have annual funds available in retirement that equal at least 80% of pre-retirement expenses. To get there, part-time workers can use the following strategies.
— Open a retirement account.
— Make your own benefits package.
— Use a health savings account.
— Work more than one part-time job.
— Start Social Security at the right time.
[See: 19 Part-Time Retirement Jobs That Pay Well.]
Open a Retirement Account
Social Security isn’t intended to pay for retirement alone, and part-time workers without access to a workplace 401(k) plan will need to find another way to supplement their government benefits.
“You really have to be disciplined and create your own (retirement account),” says Ryan Skinner, president of Summit Financial Partners in Woburn, Massachusetts.
Funding a traditional IRA will offer workers an immediate tax deduction for their contributions while Roth IRAs provide the chance to take tax-free withdrawals in retirement. Workers can make combined contributions of up to $6,000 in these accounts in 2020. Those age 50 and older can contribute up to $7,000.
Make Your Own Benefits Package
While it’s easy to open an IRA, replacing workplace insurance coverage may be more difficult. “Generally, the biggest hurdle is going to be the lack of benefits,” Blackwell says.
Part-time workers may decide to forgo some coverage such as disability or life insurance, but by law they need to purchase a health plan. Policies can be purchased on the individual market, or for those with incomes lower than 400% of the poverty level, government subsidies are available to help pay for plans offered on the federal and state health insurance exchanges.
Another way part-time workers can compensate for lost benefits is to look for discounts on insurance and other products elsewhere. Alumni clubs, professional organizations and trade groups may all allow members to buy group life insurance or access other products and services at a reduced cost.
Use a Health Savings Account
“Health insurance can be quite expensive if you buy it on the individual market,” says Neil Krishnaswamy, a certified financial planner at Krishna Wealth Planning in McKinney, Texas. “Maybe you have to sacrifice (comprehensive coverage) by having a high out-of-pocket deductible.”
The good news is that a high deductible could make a part-time worker eligible to open a health savings account. Known as HSAs, these accounts allow people to put aside tax-deductible money for health care expenses. The money in the account rolls over each year and is tax-free.
Cash withdrawn for qualified health care expenses is not subject to tax, and after age 65, account holders can withdraw money for any reason and only pay income tax on the distribution. Money used prior to age 65 for non-health care purposes is subject to a tax penalty.
Work More Than 1 Part-Time Job
Part-time employment often comes with limited income potential. That may be from either fewer hours or a lower pay rate.
“You might need to pick up more part-time work,” Blackwell says. Supplementing one position with a second part-time job could provide the extra income needed to fund a retirement account or pay for insurance.
Blackwell suggests being strategic about which jobs you choose. Benefits such as access to a 401(k) plan or health insurance may more than compensate for a lower hourly wage.
Start Social Security at the Right Time
Part-time workers can get a boost toward reaching their income goal by waiting to claim Social Security retirement benefits. For every year past their full retirement age they wait to collect Social Security, they get an 8% boost in their benefit amount, up to age 70. For part-time workers, getting the maximum amount at age 70 may put them closest to covering 80% of their pre-retirement expenses.
Terrill advises caution though. There is no one-size-fits-all time to claim Social Security benefits. She suggests part-time workers speak with a retirement planner, as opposed to an investment advisor, to determine when is best to claim government retirement benefits.
[See: 7 Best Part-Time, Work From Home Jobs.]
Maintaining Proper Expectations Is Key
Workers need to be diligent about preparing for retirement, but they should also realize this event is highly personal. “The challenge is to design a lifestyle that keeps your expenses low,” Krishnaswamy says.
For part-time workers who are used to living on a reduced income, retirement may not be as significant an adjustment as it is for workers who are used to a sizable disposable income. Working with a professional planner is often the best way to calculate the ideal income needed to ensure retirees won’t have to stretch their budget too thin.
Part-time work doesn’t have to translate to an unhappy or uncomfortable retirement, but it may require some creativity to stretch resources. And if you’re attracted to the gig economy and are open to new experiences, you might just relish that challenge.