If you work for a small company, the chances are greater than if you work for a large one that you won't have much retirement savings. The reason is simple -- you probably aren't offered a retirement savings plan at work.
Despite the government shutdown, Catherine Collinson, president of Transamerica Center for Retirement Studies, testified this week before the U.S. House of Representatives Committee on Small Business about the number of employees in the small business sector who don't have access to retirement accounts at work.
Collinson emphasized that the problem is part-time workers. Seventy-two percent of small companies offer retirement accounts -- a tax-advantaged 401(k); a Simplified Employee Pension, known as a SEP; or a Savings Incentive Match Plan for Employees, called a SIMPLE -- to 68 percent of full-time employees. However, only 36 percent of part-time workers are offered such a plan.
Because there are so many part-timers, the net result is that only 58 percent of workers at small companies can access a company-sponsored retirement savings plan. That's a serious retirement planning problem.
Collinson reminds small business owners that basic plans such as SEPs and SIMPLE Individual Retirement Arrangements are very inexpensive to set up and manage, and most payroll companies offer the service. There is a tax credit available that will offset most of the initial cost.
If you are a worker at a company with no retirement savings plan, Collinson suggests that you take these steps.
- Develop a retirement strategy on your own. Open your own IRA and one for your spouse and commit to funding them.
- Educate yourself about retirement investing.
- Avoid loans or other distributions from your IRA that will cost you taxes and penalties and diminish your savings.
- Take advantage of the saver's tax credit if you are eligible.
- Ask your employer to consider opening a retirement savings plan as a company benefit.