You’re out with friends, and the conversation turns to retirement planning — specifically, how everyone’s 401(k) is doing. As your friends discuss upping their contributions to get an employer match, you sip your drink, hoping not to be noticed. You don’t have a 401(k), and you’re worried this means you’re doomed financially.
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But you’re far from alone. Analysis from Pew Charitable Trusts shows that millions of Americans in the private sector don’t receive retirement benefits from their jobs. People who work as contractors or freelancers are also responsible for funding their own retirement. Surely, everyone can’t be doomed.
For Wade Pfau, Ph.D., CFA, RICP®, founder of Retirement Researcher, it is entirely possible to retire just as well as your friends with 401(k) plans. As part of the GOBankingRates’ Top 100 Money Experts series, he shared practical steps you can take to retire wisely without a 401(k).
Understand Your Needs
Financial planning for retirement requires a broader view of what you’d like your life to look like — or what it might realistically become. Ask yourself: When do you want to retire? What would your ideal lifestyle be? Which hurdles, like health concerns, should you prepare for?
These questions are important for everyone, whether or not they have a 401(k). As you create your plans and establish key accounts, Pfau urges you to operate with clarity. In a piece for Retirement Researcher, he explained the importance of understanding what you’re planning for — whether it’s travel, time with family or simply slowing down.
“These aspirations form the foundation of your retirement ‘why,’ offering clarity and context for everything else — from your spending targets to your risk tolerance,” he said. “Defining your goals and retirement style helps identify appropriate strategies for income generation, longevity planning and risk management.”
Pfau also offers a simple savings benchmark: aim to set aside at least 15% of your income if possible — but start with whatever amount you can and increase over time. Automating those contributions can help you stay on track.
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Look Into IRAs
Even without a 401(k), Pfau emphasizes that there are still strong retirement account options — including an IRA, or individual retirement account.
You’ve probably heard of an IRA, but if you need a refresher: It’s a personal savings account that offers tax advantages designed to help you save for retirement.
You can open an IRA at nearly any bank, brokerage, insurance firm or investment company. With a traditional IRA, your contributions may be tax-deductible, and growth is tax-deferred until funds are withdrawn. Roth IRAs are funded with after-tax money but allow tax-free withdrawals if you’re older than 59 1/2 and the account has been open for at least five years.
Generally, Roth IRAs are considered the smarter option for people who expect to be in a higher tax bracket during retirement, while traditional IRAs may be better suited to those who expect a lower bracket.
“If you qualify, a Roth IRA is great for long-term, tax-free growth,” Pfau said. “If you want a tax break now, a traditional IRA may make sense.”
For Self-Employed or Small Business Owners
If you’re self-employed or run a small business, you have additional options such as a SEP IRA (Simplified Employee Pension) or a Solo 401(k).
The IRS describes a solo 401(k) this way: “The one-participant 401(k) plan isn’t a new type of 401(k) plan. It’s a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.”
A SEP IRA is another solid choice. It offers higher contribution limits than a traditional or Roth IRA and is easier to set up than many employer-style plans. Connecting with a trusted financial advisor can help you determine which option best fits your income and tax situation.
Start a Brokerage Account
While IRAs and solo 401(k) plans provide a solid foundation for retirement savings without an employer-sponsored plan, a brokerage account can also help build long-term wealth.
In a nutshell, a brokerage account is an investment account that lets you buy and sell assets like stocks, mutual funds, bonds and ETFs. Full-service brokerage accounts offer support from an advisor or broker, while self-managed online accounts may suit DIY investors better.
One important caveat: A brokerage account isn’t tax-advantaged. That means your investments are subject to income taxes, and you’ll pay capital gains taxes when you sell assets at a profit.
“A brokerage account is flexible, with no contribution limits, but fewer tax advantages,” Pfau said. “One important point about brokerage accounts is that lower preferential tax rates are applied to any qualified dividends and long-term capital gains.”
Don’t Get Stuck in Fear
Some of the most common mistakes Pfau sees among people planning for retirement without a 401(k) stem from fear or self-doubt. The biggest? Not starting at all because they feel too far behind.
“Waiting makes it harder,” he said.
He’s also seen people leave money sitting in savings accounts instead of investing it for long-term growth. And he warns against ignoring fees and taxes — two silent threats that can quietly erode returns over time.
Bottom Line
If you don’t have a 401(k), you might worry about your financial stability in retirement. But you’re not doomed. With a smart, proactive strategy that includes understanding your needs, saving consistently, choosing the right accounts and investments and seeking advice when needed, you can make your golden years shine.
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.
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This article originally appeared on GOBankingRates.com: Here’s How To Retire Comfortably Without a 401(k)
