Save for retirement without employer-sponsored plans

Nearly half of American workers lack any workplace retirement plan. Yet, with the right strategy, building a secure future is fully within reach.

Understanding the gap and its impact

When employers don’t offer retirement benefits, individuals often feel unequipped to save. In 2023, about 56% of workers actually participating in plans despite 73% having access, underscores the power of availability—and the challenge when it’s absent.

For small-firm employees, the hurdle is even higher. Only 57% of private businesses with fewer than 100 employees offer a plan. Nearly half fear they can’t afford the costs. As a result, many younger, lower-income, and minority workers find themselves without any retirement safety net.

Why starting early pays dividends

Time is the most potent ally in retirement planning. Even modest contributions benefit from maximized compounding over decades. Consider Sarah, age 25. By contributing $100 monthly into a traditional IRA, she could accumulate over $200,000 by age 65 at a conservative 6% annual return.

Contrast that with Tom, age 45, who begins the same $100 monthly. He’ll amass less than half Sarah’s total. Both need to save, but Sarah’s head start illustrates why small amounts add up over time.

Tax-advantaged accounts you can open independently

Even without employer-sponsored options, a variety of tax-favored vehicles exist. Understanding each empowers you to choose the best fit:

• Traditional and Roth IRAs: Contributions up to $7,000 per year (or $8,000 if 50+) with tax-deductible or tax-free growth.
• SEP IRAs for self-employed: Contribute up to 25% of compensation or $69,000 (2024 limit).
• Solo 401(k)s: Ideal for sole proprietors; mirror traditional 401(k) limits and catch-up contributions.
• Spousal IRAs: Extend IRA benefits to non-working spouses using earned income from partner.

Each account has unique rules on eligibility, contribution limits, and withdrawal requirements. Tailor your approach based on income, employment status, and retirement timeline.

Supplemental vehicles and diversification

Beyond IRAs and 401(k)s, consider these options to bolster savings:

• Health Savings Accounts (HSAs): Triple-tax advantages when paired with high-deductible plans; funds used in retirement avoid penalties.
• Annuities: Provide lifetime income streams; research fees and surrender charges before committing.
• Brokerage Accounts: Offer unlimited contributions and complete investment flexibility, albeit without tax shields.

By blending accounts, you create layers of protection and flexibility, reducing reliance on any single vehicle.

Automating your savings to ensure consistency

Without payroll deductions, you must replicate the process. Set up monthly automatic transfers from checking to retirement or investment accounts. This method nurtures the habit of saving consistently and removes the temptation to delay contributions.

Platforms today allow linking bank accounts directly to IRAs or HSAs, making enrollment and ongoing transfers simple. Even if you start with $50 per month, the key is consistency.

Leveraging state-level programs

Several states have launched auto-IRA initiatives for employers without plans. While participation remains voluntary—and opt-out rates hover around 20–33%—these programs can serve as a bridge for workers who might otherwise save nothing.

Keep in mind withdrawals for financial hardship and lack of employer matches can erode balances. However, any contribution is better than none when building a nest egg.

Addressing common challenges

Workers without access face specific hurdles. Below are the most notable, along with strategies to overcome them:

• Lower contribution thresholds: Maximize each account by contributing the limit, then supplement with brokerage accounts.
• No employer match: Treat your own contributions as mandatory “matches.” Adjust your budget to prioritize savings.
• Administrative complexity: Seek low-cost, user-friendly custodians or robo-advisors to simplify management.

Realistic goal-setting and tracking

Define clear retirement targets based on desired income replacement. A common aim is 70–80% of pre-retirement earnings. Use online calculators to estimate how much you need to contribute monthly.

Review your progress annually and adjust based on changes in income, expenses, or market performance. Celebrating milestones, like reaching $25,000 in savings, fuels motivation.

Inspiring action: your next steps

Whether you’re just starting or catching up, take at least one of these actions today:

1. Open a Roth IRA and set up a $25 monthly auto-transfer.
2. Consult with a financial advisor or low-cost robo-advisor to tailor your plan.
3. Investigate state auto-IRA enrollment through your employer or directly.

Remember, retirement security is a marathon, not a sprint. Focus on the power of small, regular steps rather than chasing perfect timing.

Conclusion: owning your financial destiny

Not having an employer-sponsored plan can feel like a setback, but with the right mindset and tools, you become your own plan sponsor. By leveraging IRAs, HSAs, and other vehicles, automating contributions, and setting achievable goals, anyone can build a robust nest egg.

Start now. Even modest contributions can roll into a comfortable retirement when fueled by compounding. Your future self will thank you for the actions you take today.