Saving for retirement when you don't have a 401k

Posted: Updated:
By Jennifer Thomas By Jennifer Thomas

PHOENIX -- It is a common worry for many Americans -- not having enough money to retire.

But with very few companies offering a fixed pension, the only way out is to save for ourselves. And the most common way to do that is with a company-sponsored 401k. But if your company does not offer that option or you don't qualify, take heart, you can still save up with many of the same advantages.

"The popular choices are to open either a traditional IRA or a Roth IRA," said Mark Thompson with Scottrade.

He said either a Roth or traditional IRA can help you start building a retirement nest egg.

"Most people want to get on a regular schedule and they set up regular monthly contributions into their IRA," Thompson said.

With a 401k you do have the advantage of seeing that contribution going in tax free every paycheck. With a traditional IRA you will have to wait to see the tax advantage.

"When you file your taxes you will see the tax benefit," Thompson said.

That would mean less taxes owed or a bigger refund at year's end.

With a Roth, the money does not go in tax free but is withdrawn tax free.

Another advantage for many people with a 401k is that they don't actually see the money on their check, making it feel a little less painful.

Thompson said you can get that same feeling with an IRA at Scottrade by using automatic transfers from your bank account.

"Once they get in the habit of making those contributions, they don't miss the money and it is automatically in their account every month," he said.

And an IRA offers some advantages a 401k does not. Generally there are fewer fees, meaning more money in your account, and there are more opportunities to earn.

“With an IRA, typically, you are going to have a lot more investment choices," Thompson said. "You will have the freedom to invest in individual stocks as well as mutal funds or exchange traded funds."

And finally, Thompson said don't worry if you cannot make a big contribution every month. In the long run, it is consistency that counts.

"If you start putting little by little, you get used to it then as you get pay raises you can add a little bit more and 30 years from now you have hopefully a nice lump sum," he said.

You can open an IRA at Scottrade for $2,500. After that you can contribute an amount that is comfortable for you. Again, it is consistency that counts. And of course other brokers and banks offer IRAs, as well. Thompson said Scottrade works to keep trade fees low and offer customers online research tools to help them better manage their accounts.