5 Helpful Retirement Planning Tips for the Self-Employed Entrepreneur

5 Helpful Retirement Planning Tips for the Self-Employed Entrepreneur

As an entrepreneur, business owner, or self-employed professional, retirement might not be something you spend a lot of time thinking about. Between keeping your business up and running and making enough money to pay your monthly expenses, retirement is your last concern.

Should it, perhaps, be a bigger priority?


The State of Retirement Planning

The sad truth of the matter is that most business owners and entrepreneurs are under-prepared for retirement. According to a recent survey by BMO Wealth Management, 75 percent of business owners have saved less than $100,000 for retirement. Just 3 percent have more than $1 million in retirement savings.

What’s most alarming is that it’s not just young entrepreneurs who are being careless with their retirement. Roughly 68 percent of those in the 45-64 age bracket have saved less than $100,000 for retirement.

A large percentage of business owners say they plan on eventually exiting their business and using the proceeds to fund retirement. However, 35 percent of those surveyed say they have no exit strategy at the moment.

Even for those entrepreneurs who do have an exit strategy, banking your entire retirement on the sale of a business is never a good idea. All it takes is one issue, a new innovation from a competitor, or a shift in the marketplace and a million-dollar business can turn into a worthless commodity overnight.

If business owners and entrepreneurs don’t get something figured out soon, we’re going to have a retirement crisis on our hands in a couple of decades. Thankfully, there are options—no matter what stage of your career you’re in.




5 Helpful Tips and Tricks

Retirement planning looks slightly different for every self-employed individual. However, the basic concepts and principles remain the same across the board. Let’s check out a few tips and tricks you’ll find helpful:


1. Open Up a Retirement Account

If you’re a self-employed individual, one of the best options you have is a Roth IRA.

“To open a Roth IRA you must meet certain eligibility requirements. At a minimum you must be employed and have income. After that condition is met, how you file your taxes and how much money you make will affect whether or not you are eligible for a Roth IRA,” Eligibility.com explains. “Because requirements for Roth IRAs, traditional IRAs and other investment vehicles change from year to year, you will need to do your homework, consult with a financial advisor or your bank to make sure you do qualify under the most current rules according to the Internal Revenue Service.”

Generally speaking, you’ll qualify for a Roth IRA if you have a modified adjusted gross income of less than $129,000 if you’re filing on your own. That figure rises to $191,000 if you’re filing jointly. You can contribute up to $5,500 per year ($458 per month) until you reach the age of 50. At that point you can contribute $6,500 per year ($541 per month).

If you’re a business owner, another option to consider is a Solo 401(k). One of the primary benefits of a Solo 401(k) is that you can contribute up to 25 percent of your net earnings per year (up to $53,000).



2. Develop a Personal Budget

Often, entrepreneurs and business owners don’t set aside enough for retirement because they aren’t telling their money where to go. They’re just pulling money out to cover personal expenses. But they’re not actually calculating how much they’re spending and where the money is being used.

If you want to cover your expenses now and live comfortably in the future, you need to be strategic with your money. Developing a budget is one of the first things you should do. This will help you to identify areas where you’re “bleeding” money. And it will also let you see how much you can contribute to retirement each month.


3. Invest What You Can

One of the bigger challenges self-employed individuals face is unpredictable income. One year you might make $200,000, while the next year you might barely scrape by with $45,000. Trying to make a consistent annual contribution might not work. That’s why you should take an “invest what you can” mentality.

One year you might only contribute a couple thousand dollars to retirement. But the next year could present an opportunity to max out your 401(k) and throw a little extra into a mutual fund. If you invest to the best of your ability each year, it will all average out over the long haul.


4. Be Willing to Take on Risk

As an entrepreneur, you have a stronger stomach for risk than most people. Make sure you keep this mentality in retirement investing, at least in the early years.

When you’re 25, 30, or even 40, you have plenty of time to ride out a stock market crash or bad investment. Having said that, set up your portfolio so that it has at least a few high-risk-high-reward investments. Then, as you get closer to retirement, you can begin to shift things to more stable stocks and bonds.


5. Set Goals

If you’re like most entrepreneurs, you thrive when there are goals and objectives in front of you. In order to kick your retirement planning into high gear, come up with some very specific goals. Whether it’s having $5 million in retirement savings, or being able to retire when you turn 50, clear goals will keep you grounded when things get hard and tedious.


It’s Never Too Late to Start Saving

It doesn’t matter what age you are, it’s never too late to start saving for retirement. And this holds true even if you’re 55 and plan on retiring at 65. Simply maxing out your Roth IRA at $6,500 per year (the limit for catch-up contributions) for 10 years will yield close to $110,000 (assuming an average rate of return).

If you have a spouse who is also working, you could collectively save nearly a quarter of a million dollars in just a decade. That might not be a huge nest egg, but it’s better than nothing!

The moral of the story is to make a move. Start contributing money to retirement on a regular basis. It’ll take time, but one day you’ll look at your account statements and realize that you’re a millionaire.

Now that’s what we call living the American Dream!