When you think of part-time work, you may think of working at a low-paying job with no benefits. However, that stereotype is quickly becoming a thing of the past.
“There are a lot of ways to do part time,” says Stan Milovancev, executive vice president with CBIZ Retirement Plan Services. Seemingly dead-end part-time jobs are available, but there are also opportunities for highly skilled individuals to be well-compensated for working 20-30 hours a week.
And can those people retire comfortably if they never put in a 40-hour week? “Absolutely yes,” according to Milovancev. “They absolutely can retire well.”
Still, part-time employment has downsides when it comes to retirement. While full-time workers can receive 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.
Before forgoing full-time employment completely, understand what you might be missing and how you can compensate.
[See: 19 Part-Time Retirement Jobs That Pay Well]
Advantages of Full-Time Work
Not all part-time jobs are created equal. If you plan to work only a few shifts at a retail store or restaurant, be prepared to adjust your lifestyle accordingly.
“It’s financial freedom or time freedom. One or the other,” according to Michael Foguth, president of Foguth Financial Group in Brighton, Michigan.
For workers in lower-paying jobs, there may be little to set aside for retirement savings after paying the bills. That, in turn, can affect how someone retires. “It’s not going to be a traditional retirement where you walk away from your job,” Foguth suggests.
On the other hand, some part-time workers — particularly those working for themselves as freelancers or contractors — may earn more than full-time employees.
“I think there’s a misunderstanding that working part time means making less,” says Jay Zigmont, founder of Childfree Wealth, which provides life and financial planning services.
Either way, part-time workers may not have access to the full range of benefits offered to full-time employees. For instance, 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 didn’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.
Times are changing, though. “A lot of employers would be happy to have a part-time employee and offer benefits,” Milovancev says. That’s something that happens at his firm, and in a tight job market more companies may be willing to extend benefits packages to part-time staff.
In the meantime, those putting in part-time hours can use several strategies to compensate for missing out on the benefits traditionally associated with a full-time job.
[SEE: 13 Companies Offering Health Insurance to Part-Time Workers.]
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.
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.
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 $6,500 in these accounts in 2023. Those age 50 and older can contribute up to $7,500.
Those who are gig workers and essentially running their own business have other options such as a solo 401(k), SEP IRA or Simple IRA. These allow self-employed workers to save even more for retirement.
“For those who have a decent part-time salary, they can contribute both as an employer and an employee,” Zigmont says. “That may actually put them ahead.”
Make Your Own Benefits Package
While it’s easy to open an IRA, replacing workplace insurance coverage may be more difficult, but options are still available.
“These things were much more difficult 30 years ago,” Milovancev says. Now, various insurance policies can be found online or through a broker with relative ease.
For disability or life insurance policies, Zigmont suggests part-timers consider joining an industry organization where they can access group plans that are typically less expensive than individual policies. He notes the Freelancers Union is one option to consider.
Alumni clubs, professional organizations and trade groups may also allow members to buy group life insurance or access other products and services at a reduced cost.
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 government Health Insurance Marketplace, and for those with incomes lower than 400% of the poverty level, government subsidies are available to help cover some or all of the cost.
Use a Health Savings Account
Health insurance can be expensive, and many affordable plans have high deductibles. 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. In 2023, those with qualified high-deductible family plans can save $7,750 in an HSA while those with individual coverage can contribute up to $3,850. Individuals age 55 and older are entitled to make an additional $1,000 in catch-up contributions.
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 One Part-Time Job
Part-time employment often comes with limited income potential. That may be from either fewer hours or a lower pay rate. Supplementing one position with a second part-time job could provide the extra income needed to fund a retirement account or pay for insurance.
Be strategic about which jobs you choose. Lowe’s is one example of a company in which part-time staff are entitled to benefits. It offers access to various insurance policies, a stock purchase plan and a 401(k) account.
Selecting a part-time job with benefits such as these can help reduce out-of-pocket expenses and free up more cash to save for retirement.
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.
However, there is no one-size-fits-all time to claim Social Security benefits, and retirement planners have different opinions about how to treat this stream of retirement income. “I’m of the thought that Social Security should be considered a bonus,” Zigmont says.
Regardless of how you approach Social Security, keep in mind that it was never intended to be your sole source of income in retirement. All workers — both full time and part time — should make it a priority to build personal savings for retirement.
Maintaining Proper Expectations Is Key
Workers need to be diligent about preparing for retirement, but they should also realize that this time of their life may not involve extensive travel or a second home if they have only had modest earnings from a part-time job.
“You are probably not taking the grandkids to Disneyland,” Foguth says.
For part-time workers who are used to living on a reduced income, retirement may not be as significant of 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 relish that challenge.
“It’s an exciting time for individuals doing this,” Milovancev says. He finds that workers who are putting in only 25 hours a week are often highly productive and efficient. “They are good; they are energized; they are promotable,” he says.
If you don’t want to spend 40 hours a week at a job you don’t love, consider going the part-time route. But keep your expectations in check and use the strategies above to compensate for any employment benefits you might be missing.
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Can You Retire Comfortably if You Only Work a Part-Time Job? originally appeared on usnews.com
Update 08/17/23: This story was published at an earlier date and has been updated with new information.
