Employment in the U.S. is currently in a good news-bad news situation. The good news: the overall unemployment rate has been dropping for years, and is currently in the 4.6% – 4.7% range. The bad news: too many jobholders are underemployed and working in part-time positions. The Great Recession raised the part-time percentage of the labor force to just over 20% and it remains above 18% coming into 2017.
Part-time work has a double negative effect on overall finances. In the short term, take-home pay is lower. In the longer term, part-time work is less likely to offer retirement benefits such as 401(k) plans that are crucial to building a suitable nest egg.
A recent study by the Pew Charitable Trusts and the Bureau of Labor Statistics (BLS) reviewed the effects of part-time work on retirement savings and found that the recent trends have been hurting those groups most likely to be employed in such positions: millennials, African-Americans, and Hispanics. The study compared "lower-hour" positions in industries such as retail, the arts, hospitality, and food services with more traditional 40-hour positions. Among the important findings:
- Lower-hour industry workers have reduced access to employee-sponsored retirement plans, either from lack of a plan or lack of eligibility for an existing plan.
- Even when plans are available to lower-hour workers, they do not take full advantage of them. Only 23% of part-time lower-hour industry workers choose to do so, and only half of all workers in lower-hour industries participate when plans are offered.
- The effect also extends to those in lower-hour industries who are working full time. Full-time workers in these industries have lower levels of participation in retirement plans (50% compared to 74% in higher-hour industries) and lower balances in their accounts when they do participate.
Average wages in lower-hour industries may not provide enough disposable income to allow greater participation, but the data shows that lower-hour industry workers still participate in plans at lower rates across all income levels. That suggests eligibility issues, or an overall mindset that prevents retirement savings.
If you are an employee in a lower-hour industry, you may not be able to do anything about eligibility, but you can do something about your mindset. April Lewis-Parks, the Director of Education and Public Relations with Consolidated Credit, suggests that you take matters into your own hands. "Start a retirement fund as soon as possible...even if it's just $10 a week." It may not seem like much, but when you get in the habit – in Lewis-Parks' words, "…keep doing it week after week, month after month, year after year" – you will be surprised at how much a small contribution grows over time thanks to the power of compound interest.
Employer-based retirement programs are usually preferable because of their ease, and they are especially attractive when employee-matching contributions are involved. However, you can start your own retirement program by placing aside small amounts in your own individual retirement account (IRA). IRAs are available with no minimum dollar amount to open an account.
Periodically, efforts are introduced into Congress to open up retirement-plan eligibility, and in some cases, states are stepping in with their own state-backed programs. That's great news if they succeed, but the message is clear: do not rely purely on employment retirement programs and/or Social Security benefits to cover your retirement needs. Take charge of your own retirement plans, and start early to build lifelong savings habits and take the greatest advantage of compound interest.
To see how your retirement planning is working, try the free MoneyTips Retirement Planner to help you calculate when you can retire without jeopardizing your lifestyle.