Investing for retirement is a lifelong project, and it is a challenge, as many workers accumulate account balances too low to support them.

Unfortunately, some Americans make the process of investing in the future even more difficult than it should be. And part-time workers are particularly likely to be part of this group. Here’s why.

Part-time workers could make a retirement savings mistake

According to a recent study by the TransAmerica Center for Retirement Savings, a surprising number of people may be using the wrong accounts to save for retirement. Specifically, many people save in a regular bank account rather than a special tax investment account or account that allows them to invest and earn potentially higher returns.

Part-time workers are much more likely than full-time workers to save in bank accounts for retirement. Overall, 74% of part-time workers report using a bank for their retirement savings, compared to 64% of full-time workers.

While it may be acceptable for these employees to save some funds in a bank account so that they have liquid savings if they are approaching retirement, data from TransAmerica suggests that many people are forgoing other, better accounts, such as 401 (k) accounts and health savings accounts (HSA), in favor of investing with their Bank. And that’s a problem.

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Why a bank account might not be the right way to save for retirement

Putting money in a bank account for retirement is usually not the best approach, for a variety of reasons.

First, if workers do not use a tax-efficient pension plan, they are missing out on an important opportunity to get government help. While part-time workers don’t have easy access to a 401 (k) workplace that allows pre-tax contributions, IRAs and HSAs are often an option. They offer valuable tax benefits that could be worth thousands of dollars per year, as IRAs allow you to make deductible contributions, while HSAs allow both deductible contributions and tax-free withdrawals if the money is. used for medical services.

Second, bank accounts often offer little or no returns. If you don’t earn any interest on your money or earn low interest rates, you could actually see the value of your savings erode due to inflation – especially now, when inflation is skyrocketing.

Placing Money in a Brokerage Account Creates Much Higher Potential Return. In fact, even if you don’t know anything about investing in the stock market, you can reasonably expect to earn around a 10% average annual return over time by simply investing in one. S&P 500 index fund. No bank will provide returns anywhere near this amount.

Money in a bank account is also more likely to be spent on other short-term needs rather than actually being saved for retirement.

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What’s the best way to invest for retirement?

Tax-advantaged pension plans, such as 401 (k) s, IRA, and HSAs, are a much better choice for most people than investing for retirement using a bank account. And part-time workers should have access to an IRA, as it can be opened with any brokerage firm, as well as a HSA if they have a qualifying high-deductible health insurance plan.

If you are in the 22% tax bracket and put $ 5,000 into an account that allows pre-tax contributions, you could save up to $ 1,100 in taxes with your investment. If your income is not too high, your investment could also give you the right to claim the Saver credit and save thousands more on your tax bill.

If you’re a few years away from retirement and want enough money to cover two or three years of living expenses, you could put that money in a high yield savings account. But outside of this situation, your money probably belongs to a tax-efficient brokerage account, where you can invest and put it to work to build a more secure future.

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