So Your Employer Doesn't Offer a 401(k)? That's a Challenge, Not a Dead End
If you're one of the 56 million Americans who don't have access to a 401(k), there are plenty of other ways to save for retirement. And the sooner you start, the better.
If you're like most people, you work hard not only to cover everyday necessities, but also to prepare for a day when you don't have to work anymore.
Sadly, comprehensive retirement planning is a challenge for many workers. More than 56 million Americans don't have access to an employer-sponsored retirement plan like a 401(k),according to a 2024 Pew Charitable Trusts survey.
The good news is that a lack of an employer plan doesn't mean you can't retire successfully—you just need to take a different approach.
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Why doesn't your employer offer retirement plans?
Many employers assume that offering a 401(k) is prohibitively expensive. The reality is much more encouraging. Retirement plans designed for startups are often charged on a per-participant basis, making them scalable and affordable.
Smaller businesses also may not realize they have access to SEP IRAs and SIMPLE IRAs. These plans come with lower administrative costs and fewer management burdens. They also allow business owners to make contributions toward their own retirement.
Even if you don't have employees, you have options. A Solo 401(k) allows you to invest in your retirement, potentially saving more than you could with an IRA alone.
Which self-funded plans are available?
Regardless of why a plan isn't offered, the more important question is how individuals can take control of their own retirement savings. The first place my mind goes is to individual retirement accounts, or IRAs.
Unlike a 401(k), which is always tied to your employer and offers a limited menu of investment options, an IRA can be opened and managed on your own, while providing considerably more investment options.
The tradeoff is that contributions are capped, limiting how much you can save each year.
Another excellent choice for self-funding is a taxable brokerage account. These accounts allow you to invest in mutual funds, stocks, bonds and other securities without the contribution limits of an IRA. You'll pay taxes on dividends and capital gains, but the flexibility and uncapped contributions can make a brokerage account a valuable complement to tax-advantaged retirement savings.
Beyond choosing the right accounts, consistency matters just as much. While working with clients, I've found it helpful to set up automatic contributions to their IRAs and brokerage accounts. This replicates the "pay yourself first" approach of a 401(k)—you are less likely to miss what you don't see.
Are there any non-retirement plan options?
Beyond traditional retirement accounts, other financial vehicles can bolster your retirement readiness. Health savings accounts (HSAs) are worth considering if you have a high-deductible health plan. HSAs offer three tax advantages:
- Contributions are tax-deductible
- Growth is tax-free
- Withdrawals for qualified expenses are tax-free
While you're young, these benefits can help offset healthcare costs, allowing you to shift funds toward retirement savings. After age 65, you can withdraw HSA funds for any purpose—although you'll pay taxes on nonmedical withdrawals. I like to think of it as a stealth retirement account.
Annuities can be another source of retirement income. This financial tool is a long-term contract with an insurance company—you pay money now in exchange for guaranteed, tax-deferred income later.
Annuities provide steady cash flow for a set period or for life. However, they are complex financial instruments with varying fee structures and features, so they require careful evaluation to ensure they align with your specific needs.
How can working with an adviser help?
Even with all these options, deciding how to combine them can be challenging, which is where partnering with a financial adviser can help. An adviser can help you navigate the full range of options and provide guidance to pick the strategies that work best for your situation.
Consulting with an adviser is especially important 10 years before your desired retirement. This decade-long window allows you to make meaningful adjustments to your savings strategy and investment allocation based on where you stand versus where you need to be.
If you're 50 or older, you can also take advantage of catch-up contributions that allow higher annual limits for both IRAs and 401(k)s.
What should you do first?
The absence of an employer-sponsored retirement plan is a challenge, not a dead end. Multiple paths can lead to a secure retirement.
For example, you could start by building an emergency fund to cover six months of expenses, then fund an IRA up to the annual limit and finally direct additional savings to a taxable brokerage account or HSA.
Whatever direction you take, the important thing is to explore your options as soon as possible to allow your money more time to grow. With the right mix of planning, discipline and guidance, preparing for retirement without a 401(k) isn't just possible, it can be powerful.
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