As a household employee, planning for your retirement is one of the most important steps you can take for your future. While Social Security provides a foundation, building additional savings through retirement accounts can help ensure long-term financial security. Here’s some tips on retirement planning, the retirement savings options available, and information on how building an employer contribution into your total compensation plan can help.
Retirement looks different for everyone and depends on your savings, priorities, and when you feel ready to leave the workforce.
Experts say to aim for enough savings to replace 70% to 90% of your annual pre-retirement income. Here’s how to better estimate your needs:
For example, if you earn $50,000 annually before retirement, plan to save enough to cover $35,000 to $45,000 of income per year in retirement.
Saving for retirement is important, but it’s not always your only priority. If you’re paying down debt or building an emergency fund, it’s okay to divide your focus. It is ok to start small. Even saving a little now makes a difference over time, thanks to the power of compound interest. Generally speaking, the sooner you start saving, the more time your money has to grow.
While you can always save for retirement in traditional savings accounts, brokerage accounts, by buying gold bars, or by stuffing cash under the mattress, some methods tends to work better than others. Taking advantage of tax breaks that encourage retirement savings is one of the best options available to you. Here are some of the most common savings vehicles used by household employees.
A SEP-IRA is a retirement account funded entirely by your employer. Contributions can be up to 25% of your salary, with a maximum of $69,000 for 2024 ($70,000 for 2025).
With a SIMPLE IRA, you and your employer work together to build your retirement savings. You contribute through payroll deductions, and your employer typically matches up to 3% of your annual salary.
You can open an IRA on your own at any bank or brokerage. Alternatively, your employer might contribute directly to your IRA as part of your compensation.
Traditional 401K plans require that the family engage a plan provider or plan administrator to comply with all administrative, record-keeping, and participant statements, as required by the law. These carry costs to the employer, so most household employers opt for one of the lower-cost options described above.
Investing in a retirement account can feel intimidating, especially if you’re concerned about needing access to the funds before retirement. However, even in the event of an early withdrawal, retirement accounts—particularly those with employer matching contributions—offer significant advantages over traditional savings accounts.
When your employer matches your contributions, it’s essentially free money added to your retirement savings. For example, if you contribute $1,500 and your employer matches it dollar-for-dollar, your account balance is instantly $3,000 before any investment growth. This is a 100% return on your initial contribution, which is hard to match with any other financial product.
What Happens if You Withdraw Early?
While early withdrawals from retirement accounts can result in penalties and taxes, the employer match still puts you ahead financially. Here’s a generalized example:
Even after penalties and taxes, you’re left with $2,040—$540 more than your original $1,500 contribution. The employer match ensures you come out ahead, even if you withdraw early.
While savings accounts offer liquidity and security, they typically provide very low returns. Retirement accounts, on the other hand, offer multiple benefits:
Even in emergencies where you need to access funds early, the combination of employer contributions and tax advantages means retirement accounts provide better outcomes than saving in cash. Instead of letting fear of the future hold you back, take advantage of the opportunity to build your financial foundation.
The key is to treat your retirement account as an investment in your future. Emergencies may arise, but the benefits of contributing far outweigh the risks of withdrawing early. With every dollar you contribute, you’re setting yourself up for long-term success—even if life throws you a curveball along the way.
Retirement planning is about creating the life you want after you stop working. Whether it’s traveling, pursuing hobbies, or simply enjoying peace of mind, saving now makes those dreams achievable.
Retirement might seem far away, but the sooner you start, the more time your money has to grow. Small, consistent contributions can add up significantly over time.
Planning for your financial future is important, and HomeWork Solutions is here to support you. We make it easy for your employer to set up contributions to your retirement savings account — including both employee and employer contributions — at no additional fee. This means every available dollar can go towards building your savings for the future. Talk to your employer about taking advantage of this benefit and know that HomeWork Solutions is here to help make the process smooth and stress-free.