In his book Naked Retirement, author Robert Laura cites a researcher who found that while 75 percent of pre-retirees expect their retirement years will be better than their working ones, only 40 percent of actual retirees reported that to be true. According to Laura, a contributing factor to the equation is the disconnect between how much a person actually needs to retire comfortably and how much he or she actually saves for those years.

ABCs of 401K)s
According to Jay Wurtzler, a certified financial planner and executive vice president of Capital Growth, Inc., in San Diego, only minor changes in retirement plans are in place for 2014. For example, the maximum annual allowable contribution to a 401(K), which is a pretax retirement planning vehicle, is $17,500, same as it was in 2013. For people 50 and older, $23,000 may be invested.  A pretax retirement account means investors receive an upfront tax deduction and the investment grows, tax-deferred, until its funds are withdrawn.

Different rules apply if a person maintains both a 401(K) and an IRA. “Married persons must have an income less than $96,000 in order to contribute fully and single persons must earn under $60,000,” says Wurtzler.  These limits represent an increase of $1,000 over 2013.

According to Gary Albert, a self-employed retirement consultant from Cincinnati for 34 years, there are pros and cons of investing in a 401(K) retirement account. For example, one aspect of a 401(K) that does not apply to Individual Retirement Accounts (IRA) is that employees can invest a larger portion of their paycheck on a tax deductible basis. Employers then have the choice to match or not to match that investment, depending on how the plan was originally set up.

Meanwhile, because of the high administrative costs associated with maintaining 401(K) accounts, it is usually larger companies that offer this retirement benefit, says Albert. 

He also notes that if an employee is highly compensated, the amount they are permitted to contribute to their 401(K) could be limited by government regulations. 

The Roth IRA
A Roth IRA is a retirement account that does not provide for an upfront tax deduction, although the account grows tax free. In addition, an investor “will never owe tax on the gains, even when they withdraw funds,” says Wurtzler.

“A Roth IRA is a saving vehicle in which you place after-tax money.. This money can be invested in many vehicles but most ends up in bank CD’s or mutual funds. The income and growth of the Roth balance will not be taxable and, when money is withdrawn, no tax is due as is the case with a regular IRA,” Wurtzler says.

Married couples earning under $181,000 and singles earning under $114,000 can contribute up to $5,500 annually to their Roth IRA, says Wurtzler.

Other retirement planning vehicles

There are other retirement planning vehicles available in addition to 401(K)s and  Roth IRAs. 

For example, a SEP IRA is a Simplified Employee Pension “basically works the same as a regular IRA [but] with higher limits on contributions,” says Wurtzler. 

These retirement vehicles are adopted by business owners to provide retirement benefits for themselves and their employees. A huge benefit of SEP accounts is  there no significant administrative costs for self-employed people with no employees.

However, if the self-employed business owner or  entrepreneur does have employees, all of them “must receive the same benefits under a SEP plan. Since SEP accounts are treated as IRAs, funds can be invested the same way as any other IRA,” says Wurtzler.

SIMPLE plans are a great option for people who are highly compensated, says Albert. That’s because investors are “not discriminated against as they can be when investing in a 401(K)”, he says.

Another benefit of SIMPLE plans is that business owners can contribute up to three percent of the employee’s wages depending on how much the worker contributes to their retirement account, says Albert.