For the past 20 years, most individuals have saved and invested for retirement on their own because company pension plans are largely a thing of the past.  Living on Social Security alone during retirement isn’t appealing for most of us, since the maximum benefit is around $40k/year for 2022.¹ But how much and where should we invest for retirement?  The short answer: Most individuals should be saving and investing about 15% of their income into a retirement savings/investment plan such as an IRA or 401(k) or 403(b), or some combination.²

Companies typically offer some form of retirement savings plan with employee contributions coming directly out of their paychecks.  These are many times 401(k) or 403(b) plans but could also be 457 or deferred compensation plans, depending on the employer and type of business.  Many but not all companies will match a specific percentage of their employees’ contributions, which if you’re lucky enough to have this option, you should be taking advantage of it because this is “free money”.  Investment options for these types of retirement savings plans are generally selected by the employees from a pre-defined list of 15 to 50 mutual fund or similar options.  The IRS does set annual contribution limits for the employee portion, which for 2022 is $20.5k for employees under age 50 and $27k for employees aged 50 or older.³

Many but not all companies will match a specific percentage of their employees’ contributions, which if you’re lucky enough to have this option, you should be taking advantage of it because this is “free money”

If you work for a small company, or for yourself as an independent contractor, you may not have a company-sponsored 401(k) or 403(b) or 457 plan available.  In this case, you could set up a Simplified Employee Pension, or SEP, plan if you own your own business or work for yourself as a consultant or entrepreneur.  Small companies sometimes do offer a SIMPLE plan, which operates much like a 401(k) but has lower annual contribution limits and requires employers to match at a specific safe-harbor level.  But if none of those is available, employees can contribute to their own Individual Retirement Account, or IRA, set up directly with a brokerage firm or bank.  Annual IRA contribution limits are even lower than the others mentioned, and sometimes higher income individuals may be prohibited from making contributions altogether (e.g., Roth IRA) or may lose the tax deduction (e.g., traditional IRA).  Investment options in IRAs are virtually unlimited, with most any stock, bond, ETF, or mutual fund available.