TL;DR: Employer-sponsored retirement plans are one way to save for the future. Exploring other retirement savings options can help you diversify your savings, manage taxes, prepare for health care costs, and build retirement income. The right mix depends on your employment, finances, and long-term goals.
Main points:
- HSAs offer tax advantages and can help cover qualified medical expenses in retirement.
- Roth IRAs can provide tax-free qualified withdrawals and another way to save outside a workplace plan.
- Self-employed workers can consider SEP IRAs, SIMPLE IRAs, and Solo 401(k)s.
- Fixed annuities can provide predictable income, while variable annuities carry market risk and fees.
- REITs provide access to real estate investments but can come with market and liquidity risks.
Many people don’t realize there are additional opportunities to diversify their portfolios and maximize their money beyond contributing to employer-sponsored retirement accounts. While your 401(k) or 403(b) are vital vehicles for your future retirement, it’s a good idea to explore additional retirement savings options. Some options are helpful tools to work toward your retirement goals, and others raise red flags.
Additional Retirement Saving Options to Consider
Health Savings Accounts or HSAs
Health care is the largest expense retirees have. In 2022, a 65-year-old couple can expect to spend an average of $315,000 in health care and medical expenses in their retirement. That’s 5% higher than last year. If you have access to a Health Savings Account, you can capitalize on the triple tax advantages.
- The money you contribute to an HSA is pre-tax dollars, which lowers your taxable income
- As the amount in your HSA compounds, you are not taxed on the growth.
- When you make qualified withdrawals for medical expenses, you are not taxed on the withdrawal.
And when you reach age 65, you can take HSA withdrawals without penalty for any purpose. Be mindful that withdrawals for medical expenses will be tax-free, but withdrawals for non-medical expenses may be taxed.
Roth IRA
Roth IRAs are funded with after-tax dollars to generate tax-free withdrawals in retirement. Although you are paying taxes on the money upfront, you will be decreasing your taxable income in retirement.
A Roth IRA is one of several individual retirement account options worth considering when building retirement savings outside an employer plan. Many people find it advantageous to fund a Roth IRA now while tax brackets are at historic lows, so they have tax-free income in retirement when tax brackets could potentially be higher.
If you have a traditional IRA or a 401(k) from a previous employer, it might make sense to complete a Roth Conversion while tax brackets are lower. A Roth conversion now gives you the potential to capitalize on tax-free upside gains while markets are down.
Fixed Annuities
People have traditionally been hesitant when it comes to annuities. Recently, they’ve become less afraid of annuities, and it shows! Annuity sales in 2022 surpassed their all-time high in 2008. Recently, sales have reached record levels. In the second quarter of 2026, US annuity sales reached an all-time quarterly high of $123.9 billion, according to LIMRA. Annuities often get a bad rap, but when you understand the different types, they can be helpful savings tools.
An annuity is an agreement between you and an insurance company. You provide the funds to receive a consistent payment immediately or on a future date. Fixed annuities offer both a guaranteed rate of return and steady payments to the owner.
With guaranteed payouts for your lifetime or a set period of time, you can customize distributions to your unique situation and retirement income strategy. The goal of this type of investment is to chase accumulation and growth.
Retirement Saving Options for Self-Employed Persons
If you’re self-employed, you don’t have to rely on a traditional workplace retirement plan to save for the future. There are several retirement savings options for self-employed workers, including SEP IRAs, SIMPLE IRAs, and Solo 401(k)s. Each has different rules for contributions and eligibility, so it helps to compare your options.
SEP vs SIMPLE IRA
If you’re looking at a SEP vs SIMPLE IRA, here are a few differences to consider:
- SEP IRA: Contributions are made by the employer. This can be a good fit for self-employed individuals and business owners who want flexibility in how much they contribute from year to year.
- SIMPLE IRA: Employees can contribute through salary deferrals, and employers are generally required to contribute as well. These plans are available to eligible small businesses with 100 or fewer employees.
SEP IRA contributions come from the employer, while SIMPLE IRAs allow both employee and employer contributions.
Solo 401k Explained
Another option is a Solo 401(k). If you’ve ever wanted a solo 401k explained in simple terms, it works much like a traditional 401(k), but it’s available to eligible business owners with no employees other than a spouse. You can contribute as both the employee and employer, which may allow you to put more toward retirement depending on your income and annual contribution limits.
Savings Options That Raise Red Flags
Variable Annuities
This type of annuity subjects your investment to market risk. Not only will your investment decrease in value if the market goes down, but you are also paying fees. In these types of investments, fees can easily hide when the market is doing well.
But when the market is down, the fees will be more noticeable. You may be better off investing in the market with options that have lower fees. Before choosing a variable annuity, compare its costs, investment choices, surrender terms, and potential benefits with other retirement savings options or pension alternatives.
Real Estate Investment Trusts or REITs
Real Estate Investment Trusts are a way for people to invest in real estate without having to be a landlord. REITs traditionally perform well in a low-interest rate environment. In 2022, we’ve seen the Federal Reserve raise interest rates several times, making REITs a riskier investment. Before investing in a REIT, make sure you understand how the investment works and know what you are investing in. And be cautious. We’re seeing a lot of REITs not allowing people to divest right now, making that money illiquid.
Before making any major investment decisions, make sure you meet with a financial professional. At Asset Preservation Wealth & Tax, we work closely with our clients. We create a plan that addresses all of their retirement needs and work with them to navigate any questions they may have and build the retirement they’ve dreamed about. Set up a meeting with us today, and follow us on Facebook, LinkedIn and Twitter.
Frequently Asked Questions
What is the best type of savings account for retirement?
The best type of retirement savings account depends on your income, employment, tax situation, and retirement goals. A Roth IRA can provide tax-free qualified withdrawals in retirement, while a traditional IRA may provide tax benefits when you contribute. An HSA offers tax advantages for qualified medical expenses. Self-employed workers can also compare SEP IRAs, SIMPLE IRAs, and Solo 401(k)s.
How many people have $1,000,000 in retirement savings?
About 2.5% of Americans have $1 million or more in retirement accounts, according to recent estimates. Among retirees, that figure is about 3.2%.
Reaching $1 million is still relatively uncommon, and the amount someone needs for retirement varies based on expenses, income sources, retirement age, health care costs, and lifestyle.
Do 401(k) withdrawals affect SSDI?
401(k) withdrawals generally do not affect Social Security Disability Insurance, or SSDI, because SSDI is based on your work history rather than your assets or other unearned income. Social Security does not use a means test to determine eligibility for SSDI.
The rules are different for Supplemental Security Income, or SSI. SSI has income and resource limits, so retirement account withdrawals can affect eligibility or benefit amounts.
What is the $1,000 a month rule for retirees?
The $1,000-a-month rule estimates how much retirement savings you may need to generate $1,000 in monthly income. A common version suggests saving about $240,000 to $300,000 for every $1,000 you want to withdraw each month.
The estimate depends on the withdrawal rate. At a 4% annual withdrawal rate, $300,000 would provide about $12,000 per year, or $1,000 per month. At a 5% rate, you would need about $240,000. This rule is a general planning guideline rather than a guarantee.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
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