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.
“That’s going to be tough,” says Neil Krishnaswamy, a certified financial planner at Exencial Wealth Advisors in Frisco, Texas.
Still, financial experts say a comfortable retirement is possible. But while it’s certainly doable, part-time workers need to be diligent about their finances and set realistic expectations for their future, says Ken Hevert, senior vice president of retirement at investment firm Fidelity.
[See: 10 Ways to Make Extra Money in Retirement.]
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.
“If you’re lucky enough to have an employer-based 401(k) retirement plan and your employer will match your contributions, it’s essentially free money that you can’t touch until you retire,” says Matt Gellene, an executive with investment firm Merrill Edge. That arrangement gives full-time staff an advantage over part-time workers who have to open and fund retirement accounts by themselves.
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 put cash toward 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. “I don’t think our advice changes because we start from the same place,” Hevert says.
That means planning to have annual funds available in retirement that equal 85 percent of pre-retirement expenses, according to Hevert. Part-time workers can get a boost toward reaching that 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 percent 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 85 percent of their pre-retirement expenses.
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. 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.
[See: How to Max Out Your 401(k) in 2018.]
As for insurance, 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.
“Health insurance can be quite expensive if you buy it on the individual market,” Krishnaswamy says. “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.
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.
Maintaining Proper Expectations Is Key
Workers need to be diligent about preparing for retirement, but they should also realize this event is highly personal. “There is no specific magic number for how much you need to save for retirement to retire comfortably, and there is not a one-size-fits-all approach to saving for this milestone,” Gellene says.
There is no single definition of a comfortable retirement. “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.
However, part-time workers need to remember that the benefits afforded by flexible employment now may need to be balanced with financial sacrifices later. “I think it’s unreasonable for any of us to work part time through the majority of our working years, and then have a lifestyle in retirement [that’s the same as full-time workers],” Hevert says.
[See: 10 Work Perks That Offer Big Financial Rewards.]
Part-time work doesn’t 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.
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Can You Retire Comfortably If You Only Work a Part-Time Job? originally appeared on usnews.com
