Earning minimum wage can be difficult on an individual or their family for a variety of reasons. One of the big ones is their likely inability to save for retirement. While some minimum wage workers might think that they'll just work forever, our physical health, an unexpected emergency, or even our employer may interfere with that plan. That's why it's important for everyone, even workers earning minimum wage -- of which there were 3.3 million in 2013 according to the Bureau of Labor Statistics -- to take steps now to save for retirement.
With this in mind, we asked three of our top retirement contributors to offer guidance geared toward minimum-wage workers that could hopefully put them on the path to saving money. Here's what they had to say.
Living on minimum wage isn't easy, but one tactic that can make it easier (and this goes for Americans of all incomes) is formulating a budget.
I know what you're probably thinking: "A budget sounds difficult and time-consuming." Nowadays it's neither, since you can find computer programs that take care of the addition and subtraction for you. All it takes is you entering your expenses and revisiting those expenses once a month (give or take) for a few minutes to determine whether or not you're still on track.
A budget is critical, because far too many Americans don't understand their cash flow. You might have a good idea of how much you're making on a weekly or bi-weekly basis when you get your paycheck, but ask American workers where their money has gone by the end of the month and you'll likely get a shoulder shrug. Formulating a working budget allows minimum wage workers to better understand their cash flow so they can maximize their saving potential.
Two important points worth noting here: First, a budget can be fluid -- life changes happen all the time, and your budget doesn't have to be a set in stone spending pattern that can never be altered. Second, the power of time and compounding can improve anyone's retirement situation.
Imagine this: a worker who can save just $20 per week, or $1,040 per year, over the course of 49 years (assume our fictitious worker manages to start saving at age 18 and retires at age 67), and who nets 8% per year on their money (the historical return of the stock market), would have more than $600,000 waiting for them upon retirement. That money, along with Social Security benefits and some budgeting, could lead to a comfortable retirement.
Most minimum wage jobs don't give you the chance to save for retirement through a 401(k) or other employer-sponsored plan. But the federal government gives low-income workers a matching contribution of its own through what's known as the Retirement Savings Contributions Credit, or the Saver's Credit for short.
The Saver's Credit offers you money back for up to $2,000 in contributions to an IRA or other retirement plan account. The amount you get depends on your income, with joint filers in 2015 earning $36,500 or less and single filers earning no more than $18,250 getting a 50% credit. Smaller credits of 20% or 10% apply to those earning as much as $61,000 for joint filers and $30,500 for single filers, so even those who make somewhat more than minimum wage can take advantage of the Saver's Credit provisions.
The one downside of the Saver's Credit is that it's not a refundable credit, so if you don't have any tax liability, you won't get any benefit from the credit. Nevertheless, even some minimum-wage workers earn enough income to owe at least some income taxes; if that applies to you, then a good way to wipe your taxes out is by saving whatever you can afford to set aside for your long-term retirement needs.
There are lots of excuses that people give for not having saved up enough for retirement. But I believe one of the least appreciated reasons is simply that we are terrible at knowing what makes us happy, and spend far too much on "stuff" that doesn't really add any value.
Obviously, when you are earning minimum wage, this type of problem is the least of your concerns -- as just "getting bye" is far more pressing. But if you believe that better days (financially) are ahead for you, this period of minimum wage work could represent a golden opportunity.
Because you don't have the resources to make impulse buys, you are forced to figure out what your own level of "Enough" really is. Then, when you do get a raise or better paying job, you can maintain your level of consumption and bank the rest of your income into investments.
If you're looking for inspiration, Tesla CEO Elon Musk once spent a month living on just a dollar per day to prove that he could physically survive if his entrepreneurial pursuits went bust. As we all know, he didn't have to worry about that. But because he found his level of "Enough", everything beyond that has been icing on the cake.