Introduction To 7 Ways To Save For Retirement On A Low Income
Anyone can save for retirement starting at any age. It’s never a good idea to put off for 10-20 years what you can start doing today, but life demands that we make tough decisions. When and how much you should save for retirement are decisions you’ll have to make throughout your life.
In a way, that’s a good thing. You’re never fully committed to any one type of retirement strategy. The years and changes of your life present you with many opportunities to change your financial situation even if you feel you’re stuck in a low-paying job or career.
Here are 7 ways anyone living on a low income can start saving for retirement at any age.
1 – Buy A Whole Or Universal Life Insurance Policy
These policies allow you to build up cash value if you pay more than just the insurance premium. They are the least expensive in your youngest years of life. For example, several insurance companies offer life insurance policies to new parents or grandparents for babies that are 1 year old or less. These policies may have lifetime premiums that are very low.
The idea is not to create wealth through an insurance policy. It’s to have inexpensive insurance in place throughout your life when you are ready to get married, buy a home, start a family, or even retire. The cash account earns a guaranteed minimum interest.
A well-managed Whole or Universal life insurance policy will have a large enough balance that the interest it earns pays for the insurance costs. Those insurance costs rise throughout your life as a natural consequence of aging. Each generation becomes fewer in number as its members pass away from illness, accident, or natural causes. The fewer people in your generation, the more expensive it becomes to provide life insurance for any of them (including you).
If you’re approaching retirement age and you don’t own any life insurance, you may be offered Term insurance policies as less expensive options. Term insurance does become more expensive over time but only when you renew or pick up a new policy. The problem with Term insurance is that it doesn’t accrue any cash value for you. So you’re just spending money on insurance throughout your life as it becomes more expensive. There is no cushion with Term insurance for times when you lose all or part of your income and must adjust your budget.
The bottom line here: the younger you are, the less expensive any life insurance will before you … NOW.
2 – Open An Investment Account
It’s now possible to begin investing in the stock market with as little as $25, and maybe in some cases less. Some or all online brokerages will allow you to make a limited number of free trades or purchases.
The only investing strategy most people of any age can be sure will work in their favor is quite simple: Put what you can afford into a Standard & Poor 500 Index Fund whenever you can afford it. You don’t have to do any research. You don’t need to worry about when the market is up or down.
The sooner you start investing, even if it’s only with $25 a month, the sooner your investments will begin to grow. You may not always be able to invest $25 a month. Or you may occasionally experience a windfall or change in income that allows you to invest more.
A normal investing account must be reported on your taxes. Even if you reinvest the dividends and interest into the index fund, that will be treated as income. But there are no restrictions on this kind of investment account. If you have an emergency you can sell the stock and withdraw the money without paying a penalty.
If you’re confident you can contribute money on a regular basis and want to invest only when the market is rising, you can deposit your funds into a cash or money market fund first and maintain a cash position through the years. You’ll just make periodic purchases of whatever stocks or funds you are interested in. And this way you can withdraw money for emergencies without selling shares.
3 – Open An Independent Retirement Account
The Roth IRA plan is very popular because this is the only type of investment account where all of your future withdrawals (once you reach retirement age) are tax- and penalty-free. If you invest $100 in a Roth IRA when you are 20 years old, wait until you are 59 years and 6 months old, you can withdraw all your earnings without paying taxes or a penalty.
Because you contribute to a Roth IRA with money you’ve already paid taxes on, you can withdraw your contributions without paying taxes or penalties at any time. So suppose you contribute $25 a month for 10 years to a Roth IRA. That investment will grow to some amount. You can use a Roth IRA calculator to run simulations.
Say you start investing $25 a month when you are 20 years old. When you turn 30 you have an emergency and need some cash. If your average rate of return was about 4% (this is very modest), then you would have contributed $3000 but the account would be worth about $3600. You can withdraw $3000 without paying additional tax or a penalty. You would still have $600 in earnings in your Roth IRA, and that money would have to stay there (and grow) for another 29-and-a-half years before you could withdraw it penalty-free.
If you estimate an 8% annual growth in value (which is quite reasonable for a 10-year run of the S&P 500), then you’d have over $4000 in your Roth IRA. So after withdrawing that $3000 for the emergency you’d still have over $1000 in your account.
The takeaway here is that a Roth IRA account can help anyone with any level of income to grow their retirement savings and still plan for emergencies. Any growth in savings is better than no growth at all.
4 – Open A Health Savings Account
You can only use an HSA if you are on a high-deductible health insurance plan. Ironically, these accounts are used mostly by higher income workers. But as health insurance becomes more expensive, more low-income workers are left with little choice but to take a high-deductible plan.
A Health Savings Account (HSA) allows you to invest the money tax-free. You will never be able to withdraw the money for non-health expenses. It’s intended to help pay for office visits and prescriptions or some health-related services.
If you open an HSA while you’re still young and relatively healthy, you can build up the balance without having to pay for many medical expenses. You contribute what you can afford to the HSA account.
You don’t have to use the HSA debit card to pay for office visits and prescriptions if you don’t want to. Some people cover these expenses out of their normal household budgets and just build up the investment balance of their HSA accounts when they can.
Even if you must use the HSA account to cover co-pays and medicine costs, you don’t pay taxes on this money. So you’ll save something in the long run.
A good strategy for managing an HSA account is to build up the cash balance first and then use only part of that balance to invest in stocks or funds. Some people keep enough cash in their HSA account to cover their annual deductibles and invest the rest.
5 – Open A High-Yield Savings Account
Several online banking services offer high-yield savings with little or no minimum deposit. Even if you can only put back $25 a month, it’s better to keep that money in a high-yield savings account than a traditional savings account.
Some banks and credit unions may offer alternative savings plans like certificates of deposit where you can keep adding money whenever you have it. But cashing out of these alternative plans may be expensive or impossible.
In a savings account, the money is yours and you are entitled to withdraw it whenever you wish.
You can use a high-yield savings account to gradually build up a financial cushion that helps you beat the paycheck-to-paycheck trap. If you only earn $250 per week and are paid weekly, then having $250 in savings means you don’t have to wait for your next paycheck if you have an emergency.
High-yield savings accounts help you plan for retirement because they help you grow money faster. If you feel more comfortable investing money in larger blocks than $25, a high-yield savings account will help you build up that next investment faster.
But high-yield savings also helps you ensure you continue to pay your bills on time and make contributions to your investment accounts. While it’s true that any savings account helps you do this, a high-yield savings account provides a better return on your savings.
Planning for the long-term calls for being flexible and using short-term planning to manage your money well. The more predictable your regular income is, the easier it is to keep working for the future.
6 – Buy U.S. Government Savings Bonds
The U.S. Treasury traditional savings bonds online. You don’t have to buy them on a regular basis and you can buy as many or as few as your budget allows.
Savings bonds pay market-rate yields. But you do need to wait many years for the bonds to mature. Hence you should only invest as much money as you are sure you won’t need for a long time.
Savings bonds are popular with small investors and you can invest as little as $25 per purchase, up to a limit of $10,000 or $15,000 per year depending on which type of bond you buy.
7 – Buy Freeze-dried Meals-Ready-To-Eat
Food is only going to become more expensive. Freeze-dried MREs can be safely stored for up to 35 years. Because they are already cooked they don’t need much preparation. If you can store even a few months’ worth of food, you can buy now and save for later.
In 2019 people would have thought saving food for the future is crazy. But at the time you could buy a fast food breakfast for less than $5. Just 6-7 years later the same meal may cost over $10.
Food insecurity worsens over time for many low income workers because their pay doesn’t rise as fast as inflation, especially in the post-pandemic world where supply chains and just-in-time manufacturing have become less stable and reliable than before.
Buying and storing MREs won’t be a viable solution for everyone. But if you can afford to feed your future self even for only a few weeks at today’s prices, you will appreciate thinking that far ahead when you need food and can’t buy it so easily.
Conclusion
Saving for retirement on a low income isn’t about finding one perfect strategy—it’s about consistently using whatever tools are available to you. Each option on this list serves a different purpose, and together they create flexibility. Some help you grow wealth over time, others protect you from setbacks, and a few simply make your day-to-day financial life more stable.
The most important step is to begin. Even small contributions, made regularly, can build momentum. Over time, those small actions compound into meaningful progress. Your income may change, your expenses will certainly shift, and your priorities will evolve – but having multiple savings approaches in place allows you to adapt without starting over.
There will be periods when saving feels difficult or even impossible. That’s normal. What matters is returning to the habit as soon as you can. Retirement planning isn’t about perfection; it’s about persistence.
If you stay consistent, remain flexible, and take advantage of opportunities as they come, you can build a financial future that supports you later in life. No matter where you start, moving forward – even slowly – puts you in a stronger position than standing still.