Save for Retirement As a Single Parent

It’s tough being a single parent, and financial difficulties are some of the hardest to overcome. However, even single parents need to save for their retirement. To begin, save as much money as possible after paying for necessities. Create a budget and cut your discretionary spending. Once you’ve freed up money, you can open a retirement account, either at work or on your own.

Steps

Reducing Your Discretionary Spending

1. Create a budget. Before you can save for retirement, you need to make sure you have enough money to pay your expenses. If you don’t, you’ll only fall deep into debt, which can be difficult to claw your way out of. Sit down with your bills and identify the following:
   • Fixed expenses. These include things like your rent or mortgage, car payment, debt payments, and insurance costs.
   • Discretionary expenses. These vary week to week and are often for non-essentials.
   • Income. What do you bring in each month? Tally up money from all sources.
2. Find cheaper substitutes. To free up money, you need to lower your discretionary spending. Typically, you can find cheaper substitutes for most things you currently buy. Consider the following:
   • Instead of paying for cable television, rent movies from your local library.
   • Cancel your gym membership and exercise outside by running or joining a walking group.
   • Skip stopping into Starbucks and instead brew your coffee at home.
   • Find the cheapest grocery store in your area.
3. Save on daycare. Daycare is a necessity, but you might be able to save by signing up for the YMCA’s daycare. This option is typically cheaper than other daycare options. You can ask also another single parent to watch your children after school. You can reciprocate on the weekend.
4. Learn skills to save money. Every week you probably pay someone to do things you can learn to do yourself. You’ll have fun learning a new skill and save money at the same time. For example, try the following:
   • Instead of eating out, buy a cookbook and make meals at home. Save extra by using generic label foods and buying in bulk.
   • Learn how to change the oil in your car. You can save $30 or so a pop.
   • Instead of buying gifts, make your own. Many people appreciate freshly-baked bread or cookies, or homemade soap or candles.
5. Downsize, if necessary. When you can’t cut discretionary spending any more, you need to look at fixed expenses, such as your mortgage/rent and your car payment. If necessary, you need to downsize to reduce these costs. For example, you can sell your home and move into a smaller one or sell your car and use public transportation.
   • Downsizing is painful, particularly if it means leaving the home your children have grown up in. However, it comes with benefits. If you rent, then you aren’t responsible for maintenance, such as fixing the roof or picking up the yard.
   • You can try to find an apartment in the same area, which will allow your children to continue to attend the same school.

Increasing Your Income

1. Find part-time work. As a single parent, it might be difficult to work longer hours or get a part-time job. Instead, you need to be at home. However, there are ways to bring in extra cash which you can do from your own home:
   • Freelance on the side. You can edit articles, work as a transcriptionist, or start a blog. Work at night after your children have gone to bed.
   • Sign up for Amazon’s Mechanical Turk. You can make money writing product descriptions, answering surveys, and doing other small tasks.
2. Sell unused items. Go through your closets and find stuff you no longer use. You can sell them on Craigslist, eBay, and Gazelle. Research these websites to see how much you should charge.
   • Good items to sell online include electronics, watches, shoes, and bed linens.
   • If you have a lot of small items, you can also throw a garage or yard sale. Create vivid signs to post outside your home and put up flyers around town. Neatly organize your stuff on tables and clearly mark how much each item costs.
3. Get child support if you can. You might not have child support because you don’t know where the other parent has gone off to. However, it’s easy to get child support. In the U.S., every state has child support agencies who can locate a missing parent, establish paternity, and get a child support order put in place.
   • You can find your nearest child support agency by looking in the phone book or online. You can also contact your state’s Attorney General’s office, which is responsible for overseeing the agencies.
   • You can also find contact information here: https://www.acf.hhs.gov/css/resource/state-and-tribal-child-support-agency-contacts.
   • It only costs about $25 to use the child support agency. It’s free if you are on public assistance.

Planning for Emergencies

1. Purchase health insurance. Insurance is an additional expense, and money might be tight. However, insurance can protect you from unforeseen accidents.
   • In the U.S., you can buy your insurance on the government exchanges if you can’t get health insurance through a job. Depending on your income, you might qualify for help with your monthly premiums and your out-of-pocket expenses.
   • Your children might also qualify for free health insurance if you are low income. Contact your state’s Department of Health and Human Services to check.
2. Consider life insurance. If you were to die, someone will have to take care of your children. They’ll also need money. Here’s where life insurance comes in. You pay a monthly premium, and your children get payments after you die.
   • The most economical type of life insurance is term life insurance, which provides a death benefit for a fixed number of years.
   • There are more expensive options, which you may want to discuss with an insurance broker.
3. Set up an emergency fund. You’ll relieve a lot of stress if you can save up to six months of expenses. Use this money to pay for anything unexpected, such as a car repair or a broken refrigerator.
   • Start small. Put $10 away each pay period and then try to increase the amount.
   • You can also set up a separate bank account for your emergency fund. This way, you won’t be tempted to dip into your emergency fund to buy birthday presents or to pay for a dental appointment.

Investing for Retirement

1. Sign up for a 401(k). Check whether your employer sponsors a 401(k) retirement plan. If so, you should sign up. Money will be automatically deducted from your paycheck and deposited. You can also claim a tax deduction for your contributions, which will reduce your overall tax burden.
   • Stop into Human Resources and check if a retirement plan is offered. Ask for the paperwork.
2. Contribute the maximum to your 401(k). Check if your employer matches your contributions. If they do, then try to invest as much money as you can until you max out the matching.
   • For example, your employer might match up to 4% of your salary. Consider that amount the minimum you should contribute to your 401(k).
3. Open an IRA. Pursue a traditional IRA or a Roth IRA if your employer doesn’t offer a retirement plan. They are easy to set up. Research online to find financial institutions that offer them. In 2017, you can contribute a maximum of $5,500 if you are under age 50 (or $6,500 a year if older).
   • A traditional IRA can lower your taxable income because you can write off your contributions. You’ll pay taxes when you withdraw income.
   • With a Roth IRA, you pay taxes on your contributions but your withdrawals are tax-free at age 59.5.
4. Assess your risk tolerance. After you open a retirement account, you need to choose funds to invest in. Generally, you’ll choose between stocks, bonds, and other instruments, each of which carry different risk. There are many questionnaires you can take online to judge how much risk you want to assume.
   • If you’re young, you can ride out the ups and downs in the stock market. For this reason, you might want to invest more in stocks. Research the different stock funds available, such as international funds, small cap funds, etc. Try to diversify your stock investments across different industries. For example, don’t go 100% into tech stocks.
   • Bonds are generally less risky than stocks. If you are risk averse, you can increase the amount of bonds you hold.
   • A money market account is the least risky investment. It is like a savings account. The closer you are to your retirement age, the more money you should have invested in safe investments.
5. Make monthly contributions. Let’s say you want to invest $3,000 a year in your retirement. Try to invest at least $250 a month instead of investing the entire $3,000 at the end of the year. The price of stocks and bonds fluctuates throughout the year, so when the price is low, your $250 will buy more than when the price is high.
   • By contrast, when you invest $3,000 at the end of the year, the price might be high. You’ll end up owning fewer shares.
6. Start saving early. The sooner you save, the more you will likely have at retirement. Accordingly, try to budget some money to put aside as soon as possible. Consider the differences:
   • If you invested $5,000 annually between ages 25 and 35, you will have about $602,000 assuming a 7% annual return.
   • However, if you invested $5,000 annually between ages 35 and 65, you will earn only about $540,000 assuming a 7% annual return.

Talking to Your Children About Finances

1. Be open about your financial situation. You probably want to shield your children from your financial stress. However, your children may already be feeling stress. Children can handle honesty better than most parents realize.
   • By being honest, you’ll start to teach your children how to be responsible with money.
   • With young children, keep the discussion simple. Even young children can understand that it costs money to buy things.
2. Include your children in the budgeting. Sit down and analyze your budget, deciding where to cut discretionary spending. This will give your children a better understanding that saving money requires sacrifice.
   • As the parent, you always retain the authority to decide what to cut. Nevertheless, by involving your children in the budgeting process, you can help them understand better why you’ve had to cancel the family vacation or cut back on holiday spending.
3. Give your children memories instead of gifts. When birthdays and the holidays roll around, you might be tempted to overspend. Nevertheless, this kind of spending tends to increase your stress, not reduce it. Instead of buying big gifts, give your children memories they will cherish for a lifetime.
   • For example, plan something fun to do together, such as going for a hike in the woods.
   • Ask your children to give you memories as well. For example, they can write and illustrate a book, or they can record a song for you.
4. Tell your children to save for college. You should prioritize saving for retirement over saving for college. If you don’t, then you’ll find yourself as an elderly person without much money saved—and perhaps a financial burden on your children. Accordingly, have your children save for their college.
   • Your children can pick up a summer job working as a camp counselor, newspaper deliverer, or babysitter.
   • Help your children save by opening savings accounts for them at your local bank or credit union.
5. Research less expensive colleges. When it comes time to go to college, you should thoroughly analyze your options. For example, some states provide two years free at a community college. Your child can then transfer these credits to a four-year university. Spending two years at a community college is a great way to save money.
   • Attending an in-state public school is another option. Generally, public universities are cheaper than private ones, but you need to research the expected tuition, fees, and living expenses.
   • Another way your children can save is to take Advanced Placement classes while in high school. If they do well enough, their college might give them credit.

Sources and Citations

See also

• Make a Retirement Gift Basket
• Know How Much to Give for a Retirement Gift
• Make a Retirement Scrapbook
• Use Life Insurance in Your Retirement Planning
• Transfer Retirement Funds to a Roth Ira
• Start a Retirement Home in Ontario
• Retire from a Job You Love
• Prepare for Early Retirement
• Prepare for Retirement in Your 20s
• Plan for Long Term Care

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