Can’t afford to invest in a 401(k) or IRA? Now is 'one of the best times' to have that problem, expert says

If the income from your job doesn't stretch far enough to allow you to cover your immediate expenses while also saving for the future, you're not alone.

A survey conducted by Select and Dynata found that of those who don't currently invest for retirement in a 401(k), 403(b) or IRA, the top reason is that they can't afford it. A third of this group has a household income of less than $50,000 and 34% are among 35- to 44-year-old adults.

"Not having additional funds available to invest in a retirement savings vehicle, such as a 401(k) or IRA, is a reality for many people," Chad Parks, founder and CEO of Ubiquity Retirement + Savings, tells Select. "They likely feel that every dollar of their income is already accounted for in their budget."

But these adults, and those in other age brackets as well, have something to their advantage: the strong job market, argues Ty Young, CEO of Ty J. Young Wealth Management, one of the largest wealth advisory firms in Atlanta.

"[Not being able to afford retirement saving] is a problem, but this is one of the best times in history to have that problem because we're living in a time called 'The Great Resignation,'" Young says. "It's called 'The Great Resignation' because people are leaving their jobs for better ones."

Whether you find a 'better' job, as Young calls it, or stay at your current one, his point is to take advantage of the tight labor market — essentially when demand for employees is high and there are lots of job openings. "The employment market for workers has never been better than it is right now," Young adds.

Bloomberg cites that six in 10 employers (60%) report struggling to retain staff, compared to only 15% reporting struggling last year. In November, the unemployment rate plunged to 4.2%, Reuters reports, a 21-month low that signals a tightening labor market where workers have greater bargaining power. Not to mention, we are headed into the most popular hiring months of the year: January and February.

You may want to consider finding a better paying opportunity elsewhere or pushing for higher pay and better benefits at your current place of work. Without the available budget to contribute to a retirement plan, you're leaving a lot of opportunities on the table, such as tax advantages of making IRA contributions or getting a 401(k) match from an employer.

When considering the 35- to 44-year-old age group from the Select and Dynata survey, it's easy to see how many put saving for retirement on the back burner because of other financial obligations that may stand in their way: a mortgage, childcare, car payments and unpaid student loans.

But it's time to make retirement saving a high priority. Retirement isn't too far away. In fact, in your 30s you're almost halfway there if you plan to retire by age 67. In addition to taking advantage of the current labor market, here are four other ideas (that don't mention the dreaded 'take on a side hustle') if your current income prevents you from contributing to retirement regularly:

1. Use your windfalls

Any extra cash you receive, a bonus from work, money from holiday gifts or a tax refund in the new year, can go toward your retirement fund.

If you're expecting a windfall, you can momentarily go in and increase your 401(k) contribution online to account for the money being withheld from your paycheck and deposited into your retirement account. IRAs make it easy to deposit windfall cash after the fact, as you can just transfer the money, say a $1,000 work bonus, from your bank account to your brokerage account after you've been paid. If you're looking to open a new account, brokers like Charles Schwab, Fidelity Investments and robo-advisor Betterment each offer traditional and Roth IRAs that make Select's ranking of some of the best.

2. Save that 'bonus' paycheck

Employees paid biweekly should take note that there are two months of the year when they receive three paychecks instead of the usual two. With a biweekly pay schedule, you receive 26 paychecks per year, which accounts for two months having an extra paycheck: 12 months in a year x 2 paychecks per month = 24 paychecks. Put those two 'bonus' paychecks into a retirement account.

3. Start small

Remember that saving something is better than saving nothing at all. Though setting aside a small amount of money may seem ineffective at first, compound interest makes that tiny sum grow much larger over long periods of time. The sooner you begin saving, the sooner compound interest — earning you returns on your initial investment, plus your investment gains — can start working its magic.

Just how much this small amount is depends on what you are capable of contributing. Parks gives the example that if you're able to come up with $50 a week to save, you'll have $2,600 a year of your own savings to contribute to a retirement account, which can be increased significantly if you're eligible for tax credits and deductions.

If you take Parks' suggested $50 per week, that adds up to $200 of retirement savings a month. A 25-year-old making aggressive investments that yield a 9% yearly return would only need to invest $40 more, or $240 per month, for 40 years to reach millionaire status by retirement age of 65, according to Select's data.

Investing retirement savings in a S&P 500 index fund could be a good route for those who are younger, as historically the average annual return for the S&P 500 hovers around 10%. Of course, past returns do not guarantee future gains.

4. Optimize tax credits

Savings can come by optimizing tax credits that are available to you. Mid- and low-income taxpayers who contribute to an IRA or employer-sponsored retirement plan, like a 401(k), may be able to qualify for the Saver’s Credit, which is money that can go back into their retirement savings.

Just like a company matching an employee's 401(k) contributions, the Saver’s Credit is where the IRS will match either 50%, 20% or 10% of your retirement contribution, depending on your adjusted gross income and filing status. The lower your income, the higher the match, and the maximum credit you can claim phases out as your income increases. Learn more about the Saver's Credit on the IRS' website.

"While you may think you can't afford to save, you actually can't afford not to save or you'll be leaving money on the table," Parks says.

By using your windfalls, saving that 'bonus' paycheck, starting small and optimizing tax credits, you can start funding a retirement savings account.

"There's no getting around the fact that in order to have enough money for retirement, you have to do your part," Parks says. "That means taking money out of your paycheck." On the plus side, however, you're taking that money and investing in the future you.

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