While most people view the 401(k) plan as the “gold standard” for retirement savings, saving without one is possible. More importantly, you can supplement your 401(k) savings with many of the same retirement savings options you can use instead of a traditional 401(k) plan. Consider these savings options to help you reach your retirement savings goals whether you have a 401(k) or not.
Health Savings Accounts
While not as sexy as an IRA or a 401(k) plan, your HSA (Health Savings Account) is a sneaky way to save for retirement – mainly if you do not require those funds for yearly medical expenses. In 2023, the maximum individual HSA contribution was $3,850 for single individuals and $7,750 for families, and people over the age of 55 can invest an additional $1,000 as “catch-up” contributions. This money reduces your tax bills each year before retirement and can be used to boost your retirement savings. Withdrawals from this account, while invested with pre-tax money, are tax-free if you use them to pay for medical, dental, and vision care.
Real Estate Investments
As far as investments go, real estate is often a winning choice. Today, you have more choices than ever before regarding real estate investing. It’s not just about real property anymore. Instead, you can choose real estate investments through mutual funds, ETFs, or REITs in addition to traditional real property investments. That gives you many avenues to consider if you’re considering investing in the real estate sector.
Life Insurance
If you time it right, life insurance can be a real asset within your investment portfolio. To make the most of this investment, you must make it when you are young. Otherwise, the price may be too high to make it a viable investment. The other caveats are that you must invest in a whole life policy, and you cannot allow your policy to lapse.
Why consider a whole life policy? Often called permanent life insurance, whole life policies let you accumulate cash value over time, unlike term life policies. You can borrow against this cash value. If you pass away before repaying the amount, the borrowed sum is deducted from what your beneficiaries receive.
Because there are costs involved in whole-life policies that change as you age (and you must have excellent health to receive these policies), this is not an option for everyone. The older you are and the poorer your health, the less likely avenue this becomes for retirement investing.
Annuities
These tools, offered by insurance companies, allow you to grow your retirement savings. You may choose from a few options: fixed, indexed, and variable rate annuities. While the money grows tax-deferred, it becomes taxable upon withdrawal during retirement. Many people use tax-deferred annuities to generate guaranteed income during their retirement.
Bonds and Other Fixed-Income Investments
Fixed-income securities and bonds are other vital tools for generating retirement income. The beauty of fixed-income securities is that you earn fixed interest payments throughout the life of the investment and receive the principal back once the “loan” matures. You earn interest payments by allowing someone else to “borrow” your money for a pre-defined timeframe.
The interest you’ll earn varies from one type of bond or other security to the next. The key is to choose terms that are favorable to you and invest wisely in organizations that are sound investments. While these are generally considered low-risk investments, the downside is that they are relatively low-reward investments. You won’t get rich doing them, but if you’re looking for a safe way to generate income for the next several years, this can be a great way to do that – and then recover your initial investment afterward.
Stocks and Mutual Funds
A healthy retirement portfolio will include a fair share of stocks and mutual funds to round out your other investments. These are the stalwarts of your retirement and should be diversified appropriately to offer exceptional balance while delivering an appropriate mix of potential risks and rewards for your comfort level. There is no such thing as a “sure thing” when investing. Still, diversification can be instrumental for hedging your bets and minimizing your exposure to risks during the ups and downs within an investment lifetime.
Self-Employed or Small Business Retirement Plans
Since everyone does not work for large corporations that provide employer-sponsored retirement plans and 401(k) plans, the next best thing is to consider a retirement plan if you are self-employed or own a small business. Some self-employed plans allow you to contribute up to 25 percent of your net earnings to a retirement account such as a Simple IRA or solo 401(k).
Pension Plans
Unfortunately, pension plans are becoming exceedingly rare in modern times. Even careers that once offered them freely are backing off and opting for less costly and easier-to-manage options, like 401(k) plans they can employ outside resources to manage and maintain. For those fortunate enough to have a pension plan, this plan offers a set monthly income for life or a lump sum payment upon retirement. It is in addition to Social Security and other retirement savings and investments you may have made.
Social Security
Everyone who works contributes to Social Security. However, there are growing concerns about its future solvency. According to the Social Security Administration's projections (as of 2022), even without reforms, the fund may still be able to disburse about 75% of scheduled benefits post-2035, dispelling the notion that today's workers will see no return. While Social Security was designed as a supplemental retirement income source, relying on it as the primary retirement fund is not advisable for the average person. Many financial experts recommend having diversified savings, investments, or pension plans to ensure a comfortable retirement. For some individuals, particularly those without other retirement income sources, Social Security remains a crucial lifeline. Still, for a holistic retirement approach, it's wise not to bank solely on it.
Takeaways
Many options available to save for retirement go beyond a 401(k) plan. However, they are not all created equal. Carefully consider which types of investment you make so that you have better odds of achieving your retirement goals.