About half of American workers are employed by a company or are part of a union that sponsors a pension or retirement plan. But that doesn't mean the 77 million U.S. workers who don't have a 401(k) or employer-sponsored retirement plan are out of luck when it comes to building a nest egg. There is no reason you can't save for retirement on your own.
Here are three steps you need to take now:
Open a traditional or Roth IRA. Contribute as much as you can every month and increase your allocation every year until you reach the maximum contribution limit. Depending on your income, you can save up to $5,500 in 2015—up to $6.500 if you're 50 or older.
IRA contribution limits are far lower than for a regular or Roth 401(k), which allow maximum contributions of $18,000 this year or $24,000 if you're 50 or older. But you'll still get the benefits of compounded earnings growth as well as certain tax advantages. Regular IRA contributions may be tax-deductible and Roth IRAs allow you to withdraw those funds tax-free in retirement.
Self-employed? Consider these three tax-advantaged ways to save:
- SEP IRA: Contribute as much as 25 percent of your net earnings from self-employment income, up to $53,000 this year.
- Solo 401(k): In addition to salary deferrals of up to $18,000 (or $24,000 if you're 50 or older), a worker who is self-employed can contribute an additional 25 percent of your net earnings, up to $53,000.
- SIMPLE IRA: You can put all of your net earnings from self-employment in the plan up to $12,500 in 2015, plus a "catch-up contribution" of $3,000 if you're 50 or older.
Add to retirement savings in a taxable account. Pick investments—stocks, bonds, mutual funds and other assets—based on your appetite for risk and when you want to retire. If you have extra money to stash in brokerage account in addition to tax-advantaged plans that can also help you build long-term growth to ensure you are able to retire on your terms.