Invest Retirement

How To Save For Retirement After Stepping Out Of The Workforce

Kathryn Tuggle  |  May 5, 2021

Just because you exited the workforce doesn’t mean you can’t save for retirement. Here’s how to do it, no matter your career status.

When Brittny Anselmo, a marketing executive from New York City, stepped away from her career to care for her two children, she quickly rolled her 401(k) into an IRA. Twelve years later, that IRA account balance has grown — but not as much as it could have. Without adding contributions to her account during her decade + out of the workforce, Anselmo lost the compounding effect that would have significantly increased her retirement savings. “I didn’t put much thought into saving for retirement once I left. I figured once the company 401(k) was gone, so were my savings options,” said Anselmo.  

Anselmo is among the millions of women who exit the workforce well before retirement age. They do it for many reasons: whether it’s to care for a loved one, start their own business, or work in the gig economy. Many give up big salaries, tax-advantaged retirement savings plans, and bonuses in the process. That can be devastating to their retirement savings. Fidelity Investments found that just one year out of the workforce for a 35-year old woman earning $100,000 could result in more than $200,000 in lost retirement contributions and savings by the time you reach age 67. The longer you stay out of the workforce, the greater the impact. 

During the COVID-19 pandemic, we’ve seen millions of women exit the workforce, and we know the burdens have been great. A Fidelity Investments survey found that 39% of women had considered leaving the workforce or scaling back their hours to care for loved ones or manage remote schooling during the pandemic. 

But there is good news. When work breaks are a necessity, there are ways to continue to save for retirement. Here’s a look at how to do it. 


If you exit the workforce and need to draw down from savings, Wendy Liebowitz, CFP, VP Branch Leader of Fidelity Investments’ Fort Lauderdale Investor Center says to make sure it’s coming from taxable accounts, not tax-deferred ones. That means using money in your checking, savings, and general investment accounts rather than a 401(k), 403(b), IRA, or annuity. If you withdraw from the latter early, you could face tax penalties, plus you lose out on the wonderful impact of compound interest, which is how your money grows over time. “We strongly ask that you consider withdrawing from taxable vehicles first. It allows the money to continue to compound over time and you’ll have it for retirement,” said Liebowitz. “Once you’re in retirement it’s hard to borrow money.”

Let’s say you started contributing $6,000 to an IRA beginning at age 25. By retirement at age 70, that IRA will be worth $1,440,592, according to Fidelity’s calculations. If you started at age 35, the balance would be $757,609. 


If you’re married, you can continue saving for retirement through a spousal IRA. With a spousal IRA, the working spouse contributes on behalf of the spouse who isn’t earning income.  “It’s the easiest thing to do if you have a spouse and file joint tax returns,” said Nasrin Mazooji, VP of Compliance and Regulatory Affairs at Ubiquity Retirement + Savings. “You can contribute to an IRA as long as your spouse has income.” For 2021, you can both make annual contributions of as much as $6,000. That number goes up to $7,000 if you’re 50 or older. 

If you left the workforce to start your own business, freelance, or work in the gig economy, you also have the option to open a solo 401(k). Created for the self-employed, a solo 401(k) enables you to get many of the benefits of an employer-sponsored plan without having to be employed. You do need an employer identification number to open a solo 401(k), which you can apply for on the IRS website. Both you and your spouse can contribute to a solo 401(k). “It’s becoming more common that people step away from working for large institutions and enter the gig market or do freelance work,” says Mazooji. For 2021, you can contribute as much as $58,000. If you are 50 or older you can contribute an additional $6,500. 


For women who aren’t earning an income once they leave the workforce, there are ways to maximize the return on the investments they’ve already amassed. For example, you don’t want to roll over your 401(k) plan without reviewing your portfolio. Your investment choices may be a lot different when you aren’t contributing to your retirement account anymore. “You may want to rebalance it, or choose more or less aggressive investments,” says Fidelity’s Liebowitz. “You have to choose whether you want to stay in your plan or roll it over to an IRA. All of those choices are designed to keep you invested.” A target-date fund is popular among women saving for retirement. The closer you get to retirement, the more conservative the investments in the fund become.  


An often overlooked way to save for retirement when you aren’t working is through a health savings account. This is an account used to pay for medical expenses when you have a high deductible medical plan. You don’t need an employer to open an account, and you get similar tax advantages as a 401(k). With no restrictions on how long the money can stay in the HSA, Mazooji says some people keep it there until retirement. You won’t become a millionaire using an HSA alone, but it can be an important tool in your investment toolbox. For 2021, the contribution limit for an individual is $3,600. 


One of the best things you can do before you exit the workforce is to seek help. Even if you’re dealing with a small amount of money in your retirement savings account, professionals can help you find the best ways to make that nest egg grow. “So many women hold off  thinking they don’t have enough money or are not in a situation where they would be eligible for support,” says Liebowitz.“It’s helpful to understand the impact of decisions before you make them.” 

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