Millions of Americans are facing a retirement crisis, and it’s not one of their own making. Although personal finance experts love to chide people who don’t save for the future, their well-meaning advice to contribute as much as you can to your company’s 401(k) plan is basically useless to many workers. That’s because just 14% of all employers offer a 401(k) or similar defined-contribution retirement plan, Bloomberg reported.
Unsurprisingly, big employers were far more generous with retirement benefits than smaller companies. Fewer than half of companies with under 100 employees offer a 401(k), the analysis of income tax data by U.S. Census Bureau researchers revealed. More than 80% of employers with 500 employees or more do provide retirement benefits to their workers. Because big companies employ far more people than small ones, that means 79% of people in the U.S. have the option of contributing to a 401(k) or similar plan. (Whether they can afford to do so is another question entirely.)
Still, that leaves 21% of workers out in the cold when it comes to using the most popular retirement savings vehicle out there. Do those people need to give up on the idea of retirement security? Should they plan on working until they drop dead or start stockpiling canned goods in lieu of a pension? Hardly.
Not being able to contribute to an employer-sponsored retirement plan is a disadvantage, but it’s one you might be able to overcome. Even if you don’t have a 401(k), you can take the following 12 steps to prepare for retirement.
1. Double-check your benefits package
You think you don’t have a 401(k) at work, but are you sure? Many workers don’t sign up for their workplace retirement plan because they don’t know it exists, Bloomberg reported.
Before you start considering 401(k) alternatives, make sure you’re not missing out on an opportunity that’s right in front of you. Review the paperwork you received on your first day, check the employee handbook, or talk to HR if you’re not sure whether a plan is offered.
You might have overlooked the information about the retirement plan when you were initially hired. The company could have added retirement benefits since you started working. Or the plan might not be called a 401(k). If you work at a nonprofit, you might have a 403(b). Or you might have a Simple IRA or SEP IRA if you work for a small business.
Next: Don’t be afraid to speak up.
2. Talk to your employer
Even if your company doesn’t currently offer a 401(k) or other retirement plan, all is not lost. Reach out to your boss or HR, and let them know this is a benefit you’d like them to offer. You’ll want to have a compelling argument for why a plan is a good idea before you broach the topic.
You might point to evidence that better benefits makes it easier to hire and retain workers, or say saving for retirement also interests your co-workers. Because many employers worry about the cost of setting up a retirement plan and complying with various laws, you could point them to options, such as the Simple 401(k) or Simple IRA, which are specifically designed to make it easier for small businesses to offer retirement perks to their workers.
Next: Take matters into your own hands.
3. Set up a traditional IRA
If your employer isn’t open to the idea of adding retirement benefits, you’ll need to strike out on your own. For many people, the easiest way to do this will be to set up an IRA, or an individual retirement account.
A traditional IRA allows you to save up to $5,500 a year for retirement ($6,500 if you’re over age 50). If you don’t have a retirement plan at work, your IRA contributions are tax deductible. (If you’re married and your spouse is covered by a plan and you’re not, there are contribution limits.) Plus, your savings grow tax-free until you start making withdrawals at retirement.
Setting up a traditional IRA isn’t hard, though it can be a bit confusing if you’re a newbie investor. You’ll have to start by figuring out where to open your account. Banks, brokers, and robo-advisers all offer IRAs. Account minimums, investment options, and costs vary. Check out NerdWallet for a rundown of choices for the best IRA providers.
If you’re new to saving, a provider with low or no account minimums and low-cost investing options might be a good place to start. Once you create your account, you can set up automatic transfers to fund it. If your goal is to max out your yearly contributions, you’ll want to save $458.33 per month.
4. Set up a Roth IRA
Roth IRAs work in much the same way as traditional IRAs, with one crucial difference: The money you contribute can’t be deducted from your taxes. In exchange for giving up the tax deduction today, you get something that might be even better: the possibility of tax-free income in retirement. Roths have a few other perks, as well, such as penalty-free early withdrawals of contributions (though not earnings) and no required minimum distributions at age 70½.
Not sure whether a traditional or Roth IRA is the right choice? It all depends on what tax bracket you think you’ll be in at retirement. If you think your taxes will be higher in retirement than they are today, a Roth is a smart move. If you think your taxes will be lower when you retire, go with the traditional IRA.
One other Roth quirk: If you make more than $118,000 a year (if single) or $186,000 (if married and filing jointly), you either won’t be able to contribute to a Roth or will only be able to contribute a reduced amount. Finally, you can’t double up on IRA contributions. You can save no more than $5,500 in both a traditional and Roth IRA in a given year.
5. Open a myRA
If setting up an IRA or Roth IRA seems too complicated or confusing — or you’re worried you won’t be able to meet account minimums or are put off by high fees — consider a myRA. A myRA is a “starter retirement saving account” from the U.S. Treasury Department. Opening one is easy and free, and you can contribute as much (or little) as you like. Contributions can come directly from your paycheck, checking or savings account, or even your tax refund.
The money you put in a myRA is invested in Treasury bonds. These are a very safe investment, but they also earn a low return — 2.25% as of May 2017. The max contribution is $5,500 a year, and if you’re already maxing out your IRA contributions, you won’t be able to save in a myRA. You also can’t deduct your contributions, but your withdrawals will be tax-free in retirement.
Once your balance reaches $15,000, it will roll over to a Roth IRA. The low returns and one-choice investment options have caused some people to criticize these plans, but for people without much money who are looking for a painless way to start saving, the myRA might be an option to consider.
6. Look at options for the self-employed
Are you the boss who’s standing in the way of your retirement security? Self-employed workers and small-business owners have options for saving for retirement beyond traditional and Roth IRAs.
If you work for yourself, consider a SEP IRA, which lets you put away up to $54,000 a year for retirement. Or you could set up a solo 401(k). The contribution limits are similar, but you might be able to save more because of slightly different rules regarding those contributions.
If you’re self-employed and considering setting up a retirement plan for your business, talk to a financial professional. They can walk you through the pros and cons of the different options, particularly if you have employees.
Even if your business is a side gig in addition to your full-time job, you can still set up a retirement plan. Shoveling a big chunk of your side gig money into a tax-advantaged retirement account, such as a SEP IRA, could help make up for not having such a plan at your full-time job.
7. Consider the spousal IRA
Some people aren’t saving for retirement because their employer doesn’t offer a plan, while others aren’t saving because they don’t work. Usually, you need to have earned income to contribute to a retirement account, but the IRS offers an exception for married couples where one person earns little or no income: the spousal IRA.
Spousal IRAs are basically the same as a traditional or Roth IRA, except that the working spouse can contribute an additional $5,500 a year on behalf of their non-working spouse. If neither of you has a workplace retirement plan, the contributions are entirely deductible.
8. Max out your HSA contributions
Your employer might not have a retirement plan, but another one of your employee benefits could give you a way to save tax-free for retirement: your high-deductible health plan with a health savings account, or HSA.
An HSA lets you put aside $3,400 per year pre-tax ($6,750 per family) to cover out-of-pocket health expenses. The money grows in the account tax-free, and if you use the funds to pay for qualified medical expenses, withdrawals are tax-free, too. And unlike flexible spending accounts, there’s no use-it-or-lose-it provision with an HSA. So your savings add up over time, provided you don’t have a major health crisis that forces you to drain the account.
Considering that your health expenses are likely to skyrocket as you age, setting aside some money now to cover those bills can be a smart move. And if you don’t need the money for health care costs, you can make penalty-free withdrawals after age 65 to cover other living expenses.
9. Look at real estate
Investing in real estate isn’t for the faint of heart, but if you have the stomach for it, purchasing property could increase your retirement security. Provided you are financially stable and have other savings and investments, adding a rental property to your portfolio could yield a nice income stream in retirement, CNBC reported.
Unsurprisingly, investing in real estate is a bit more complex than making monthly contributions to your IRA. You’ll need to save for a down payment, have money in reserve to cover various expenses, and pay attention to taxes. You also want to be wise about where and what you buy, and prepare to deal with the headaches of being a landlord.
10. Save the old-fashioned way
People love 401(k)s and IRAs because of the tax advantages, but they’re not the only way to save for retirement. Investing in a plain old investment account is another way to build your nest egg. Sure, you won’t get to deduct your contributions from your taxes like you do with a regular 401(k). But you also won’t have to worry about rules regarding withdrawals and contribution limits, which is a big plus for some people.
Capital gains tax can be an issue if you’re investing for retirement outside a 401(k) or IRA, particularly if you’re high-income. But if you’re in the 10% or 15% tax bracket, you won’t have to pay any long-term capital gains tax, Bankrate explained. Working with an experienced accountant or adviser can help you minimize your tax liability if you’re saving for retirement outside of a 401(k).
11. Double-check your Social Security statement
For many Americans, the bulk of their retirement income comes not from personal savings or a pension, but from Social Security. Because it’s likely to be a critical source of retirement income for you, it’s important to make sure the Social Security Administration is calculating your expected benefit correctly. To do that, take a few minutes to review your Social Security statement. (In fact, everyone, whether they have a retirement plan at work or not, should take this basic retirement planning step.)
Your statement includes records of your yearly earnings, which Social Security uses to determine your benefit. If your income isn’t correct, you could get less money when you retire. Social Security will mail you a statement every five years for you to review, or you can go online and create an account to check your statement. If you find an error, you can contact the Social Security Administration to have it fixed.
12. Delay claiming Social Security
When it comes to a return on your retirement savings, there are few — if any — guarantees. But if you’re nearing retirement and your savings are coming up short because you didn’t have access to an employer-based plan, one move could do a lot to increase your financial security: putting off claiming your Social Security benefits.
Although you can begin taking your Security Security benefits as early as age 62, you’ll get pretty significant bump in your check if you can hold off. Your check will increase by 7% to 8% for every year you wait, until you get to age 70. People whose benefit at age 62 would be $1,875 a month could get $3,300 a month if they waited until they turned 70 to start getting those checks, retirement expert Wade Pfau explained to The Wall Street Journal.
Delaying is the most straightforward way to get more out of Social Security. But depending on your situation, you might be able to get additional benefits. Divorced spouses who were married for at least 10 years and haven’t remarried can get benefits based on their ex’s working record, for example. If you earned little money during your marriage, you might get a much bigger check using this strategy. Widows and widowers can claim a survivor benefit, then switch to their own retirement benefit at age 70 if the latter will be larger, Kiplinger explained.