How to Save for Retirement on a Minimum Wage

The minimum wage in the United States is $7.25 per hour. Assuming a typical 40-hour work week, that adds up to $15,080 over a year. If you’re fortunate enough to live in one of the 29 states with a higher minimum wage, you can make a little over $20,000 in a year. But for many, that’s still a far cry from a comfortable existence.

Many minimum-wage workers have enough trouble just making ends meet, let alone putting anything away for the future. But it is possible to retire comfortably on a minimum-wage salary. Consider Ronald Read, a janitor and gas station attendant who had amassed an $8 million fortune by the time of his death in 2015.

All it takes is a frugal mindset and the right tools. Here are some guidelines to get you started.

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Cut unnecessary expenses

Write a list of all your monthly expenses. This includes your rent or mortgage payment, your car payment, utility and cellphone bills, plus extras like your morning latte, music streaming, and nights out.

Brainstorm ways to cut these costs. For example, you could make your coffee at home, listen to your radio instead of streaming, or switch to a lower data plan for your cellphone. If you live in a city, you may want to look for a roommate to share rent costs or consider selling your car. You can easily find a few hundred dollars in savings this way.

Most people are spending around $3.25 on their coffee every weekday morning. Over the course of a year, that adds up to $780. By comparison, the cost of making a cup of coffee at home is around $0.17, which adds up to a mere $40.80 in a year. That’s a savings of $739.20 just for skipping your morning Starbucks run.

Look for ways to boost your income

If you’re still not saving as much as you would like, look for opportunities to increase the money coming in. If you have any collectibles or old items you don’t use anymore, you can sell these for cash. If your employer pays extra for overtime, see if you can pick up an extra shift or two.

Or you may consider taking up a side gig. Uber drivers make an average of $364 per month, though this depends on where you live and how often you’re working. You could also think about renting a spare room or apartment on Airbnb if you have one available. According to estimates based on property values in the area, you could make $132 a day renting out a private room in Manhattan. Assuming a 90% occupancy rating, that comes out to around $3,564 per month.

Eliminate your debt

Your next step should be to take some or all of that extra money you’re saving by cutting expenses and use it to pay off any debt. This can be done prior to or in conjunction with saving for retirement. The right strategy all depends on what you owe.

The average rate of return on a 401(k) varies from about 5% to 10%. If you have thousands of dollars of credit card debt with a 25% interest rate, you’re losing more by carrying a balance than you would earn by putting that amount in your 401(k). In that case, it’s smarter to pay off the debt before raising your 401(k) contribution.

If you don’t have any high-interest debt, it’s better to pay off your debt more slowly and put more money into your retirement savings.

Contribute as much as possible to your 401(k)

If your workplace offers a 401(k), put as much money into this as you can comfortably afford. Making contributions regularly and starting early in life are the best ways for minimum-wage workers to build up a comfortable nest egg.

The sooner you start making contributions, the more compound interest can work for you. Say you put $1,000 in your 401(k). Assuming an 8% rate of return, that $1,000 will have grown into $4,660.96 in 20 years. In 30 years, it increases to $10,062.66. And the more money you put in, the more interest you’ll accrue.

Some workplaces will also match part of your 401(k) contributions. For example, for every dollar you put in, your employer will add $0.50, up to a certain threshold. So that $1,000 you added in our previous example becomes $1,500 — and in 30 years, it will have grown into $15,093.99.


If your employer doesn’t offer a 401(k), you can still save for retirement by opening up an individual retirement account (IRA). These accounts also earn interest over time — though, like 401(k)s, the rate of return depends on what you invest in. If you go with a traditional IRA, you won’t be taxed on any of the money you contribute until you take it out. You will be taxed on any contributions to a Roth IRA, but you won’t pay any taxes when you take it out, provided you are of retirement age.

The current IRA contribution limit is $5,500 per year for those under age 50. If you’ve maxed out your IRA and you’re looking for a way to grow your savings even more, consider opening a taxable brokerage account as well. You will be taxed on any money you contribute as well as any interest that you earn, but the rate of return is often much higher than what you’d earn by leaving your money in a savings account.

You don’t have to choose between making a living or saving for retirement. By making these few simple changes, you can put yourself on track for a comfortable retirement even if you never earn above the minimum wage.

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