Employer not needed to save for retirement

Money Talk

Dear Liz: After nine months of unemployment I finally landed a new job, but at half my former $100,000 salary. In this economy I was happy to get it. I always contributed the maximum to my 401(k) and employee stock purchase plan, but my new company does not offer either of these options. I made it through my period of unemployment on severance, savings and belt tightening. Other than a mortgage, I have no debt. I realize I need to both catch up on missed contributions and continue to put away money for retirement. I just turned 60. What is my best move for continued retirement saving? And how will my reduced salary affect my future Social Security benefits?

Answer: You don’t need your employer to help you save for retirement, fortunately. Since you’re over 50, you can contribute $6,000 to an IRA or Roth IRA annually. You can open an account at virtually any bank, brokerage or credit union. Look for one that doesn’t charge you account service fees and that has a broad array of low-cost investment options. Vanguard, for example, waives its service fees for IRA investors who sign up for electronic statements.

If you’re able to save more, you can do so in a regular, taxable brokerage account. You won’t get a tax break for your contributions, as you would with a traditional IRA, but you can qualify for low capital gains tax rates if you hold your investments for at least a year.


Your Social Security benefits will be based on your 35 highest-earning years. The Social Security website ( has a benefits calculator that enables you to see your estimated future benefit based on your work record so far, and that enables you to create different scenarios — such as a lower salary going forward, or different retirement ages — to gauge their effect on your future checks.

Shedding debt and saving on a shoestring

Dear Liz: The 50/30/20 budgeting plan you advocate just doesn’t work on a low income. I currently rent because I can’t afford the purchase of a house, and the lowest I can go and still be in a safe neighborhood is $600. That’s well over 40% of my salary, and you say all your “must have” expenses including shelter, food and transportation should be 50% or less of after-tax income. With rising prices, saving and debt elimination seem like an unreachable reality. What concrete advice do you have for someone who doesn’t have a credit card, and is trying to get out of $7,000 of debt, to get to stability to purchase a home?

Answer: Saving and debt elimination are tough on a low income. But that doesn’t mean basic math doesn’t apply in your situation. If you spend too much on your “must have” expenses, there simply won’t be enough left over to live your life, pay off your debt and save for your future.

People on lower incomes manage to stay out of debt and save money. To do so, though, they have to limit what they spend on their overhead. They find roommates or rent a room in someone else’s house, or move in with a family or an elderly person and offer to help out in exchange for part or all of their rent. Some decide they simply can’t live cheaply enough where they are, and opt to move elsewhere. Books and websites devoted to the voluntary simplicity movement can give you other concrete ideas about how to live on a shoestring.

If you can’t bear to trim your expenses, your only other option is to make more money. That’s not an easy prospect in this economy, but a second job or a side business could help you get out of debt and save for a down payment.

Resources for financing a college education

Dear Liz: What are some good possible resources for loans and other financing to pay for school? I am going back to school to try for my degree and I am pretty strapped for cash even though I work full time. Any suggestions would be appreciated.

Answer: Don’t go back to school to “try” for a degree. Go to get one. A college education is economically useless if you don’t get that sheepskin.

The financial aid education site is a great resource. You’ll find an “estimated family contribution” calculator that will predict how much you’ll be expected to pay for your education and how much financial aid you can expect. You also can learn about federal student loans, which are available to just about everyone and which have reasonable, fixed rates and numerous consumer protections, including income-based repayment plans. Try to avoid private student loans, which have variable rates and few of those protections.

Liz Weston is the author of “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via Distributed by No More Red Inc.