by: Amanda Abella
Retirement is defined as the time a person chooses to leave the workforce. During this time, people must find a way to support their lives – ideally in the form of retirement savings in addition to any Social Security benefits.
Unfortunately, when it comes to retirement planning within the Latino community, data from Prudential shows that only 30 percent of Latinos have access to an employer-sponsored plan.
In other words, only 30 percent of Latinos work for companies in which opting into a retirement plan like a 401(k) is even a thing. There are two main reasons for this lack of access. First, many Latinos work low-wage jobs where this kind of benefit is not available to them.
Second, there is a lot of entrepreneurship within the Latino community. The same research from Prudential showed that, in the last year, Hispanic-owned small businesses grew at twice the rate of the national average.
Why Retirement Is Important
Even if you don’t see yourself having a traditional retirement, saving for it is still important. Simply put, sometimes it’s not a matter of if you choose to stop working, sometimes it’s a matter of you physically can’t do it anymore.
If you do want a traditional retirement, then your retirement savings are what’s going to help you beat inflation (the rise of the cost of goods over time) and supplement social security, of which the benefits will likely not be able to cover living expenses.
There’s More to Retirement Than a 401(k)
The good news for Latinos is there’s more to retirement planning than a 401(k). There are plenty of individual accounts – some of which also come with tax benefits – that Latinos can now easily access in an effort to save for retirement over time.
All of these vehicles require some form of investing in order to save for retirement. Simply put, your cash in the bank will not beat inflation, so you need to find ways to grow your money beyond the interest rate your bank may give you for savings.
Individual Retirement Account (IRA)
One of the most common ways to save for retirement outside of an employer-sponsored plan is with an Individual Retirement Account, otherwise known as an IRA.
IRAs are easy to open and you can start with as little as $5 a week into the fund of your choosing. Some brokerages, particularly solely online services like FinHabits, don’t even have a minimum requirement to open one.
The only catch is you can’t touch the money without penalty until the age of 59 ½. There are also annual max contribution limits. There are two kinds of IRAs you need to be made aware of – a Traditional IRA and a Roth IRA.
With a Traditional IRA, the contributions you make now can be deducted from your taxes. However, any withdrawals you make during retirement will be taxed.
With a Roth IRA, you pay taxes on it now so you don’t have to pay them later. The only down side is your contributions now are not tax deductible.
The U.S. Department of Treasury created a myRA account to help people get started with retirement savings if they don’t have employer sponsored plans.
This allows you to save money that is backed by the U.S. government and grows at a higher interest rate than you would find in the bank. You can also withdraw the money at any time without paying tax or penalty and there are no minimum requirements or fees.
This is a good starter or you may even use it as a buffer, but eventually you’ll need to put some of your money in investment vehicles that can give you a better return.
Retirement Options for the Self-Employed
In addition to the options already mentioned, small business owners have some other options to save for retirement. The two main options are an SEP IRA and a Solo 401(k).
An SEP IRA is basically an IRA for the self-employed. The contribution limits are much higher than that of a Traditional IRA or Roth and your contributions are tax deductions. Like a Traditional Roth, your withdrawals will be taxed later. An SEP IRA is also very easy to open.
A Solo 401(k) is a traditional 401(k) plan that covers a business owner with no employees or a business owner and their spouse. They have the same rules and requirements as a traditional 401(k) plan you would get through an employer. The main advantage is that the contribution limit may be higher and the self-employed individual
There are several options out there for Latinos who want to save for retirement but don’t have access to an employer-sponsored retirement plan – so there are no excuses not to do some retirement planning!
As always, make sure to consult a certified financial planner or an accountant before making any decisions about which retirement option to choose. Everyone has a unique situation that must be assessed.