When you work for yourself, it’s never too early to start socking away some bucks for retirement. In fact, part of being a financially “literate” entrepreneur means proactively managing your money today so you can enjoy a comfortable retirement in the future. Does that lofty goal seem far-fetched (not to mention far off)? We get it. Let’s think about your options, and take it one step at a time.
Get started today (no, really)
The idea of saving for the future may be daunting, especially if your instinct is to put every dollar you generate right back into the business. Here’s a reality check: The earlier you start saving, the longer your retirement savings will have to grow. Trust us, saving small is a lot better than not saving at all. Does $50 a month feels comfortable? If you save $50/month for 40 years with a 6% annual rate of return, your investment will total $100,000!
Set a goal of one day saving up to 15% (or more) of your annual salary.
Understand your savings options
Small business owners have several sound options for contributing to and growing their retirement funds. Here’s a quick overview of four of the most popular accounts.
Roth/Traditional IRA. Both these Individual Retirement Arrangements are investment accounts managed by a brokerage or financial institution. You can access funds from either one when you’re 59 ½ years old, unless you’re willing to pay a penalty. The Traditional IRA is for pre-tax dollars that you’ll be taxed on when you withdraw in the future. The Roth IRA is for post-tax dollars which you can access, tax-free, later on.
SEP IRA. The Simplified Employee Pension IRA is set up by an employer (in this case, you) on behalf of an employee (again, you or someone who works for you). You’ll contribute pre-tax dollars until you withdraw at 59 ½, at which point your money will be taxed at your current income rate.
Solo 401k. Also known as an “Individual 401k,” a Solo 401k is for owner-only companies with no employees. It covers only you (or you and your spouse, if any). You can set up a solo 401k whether your business is incorporated or a sole proprietorship. You can contribute to it as both an employer and as an employee, which gives you the option of saving more money each year.
Personal Defined Benefit Plan. This is an option for people who can make a significant contribution each year – to the tune of 250K or more, according to Charles Schwab.
There’s a lot more to learn about the pros and cons of each of these retirement savings plans. This article explains what you need to know.
Make saving as easy as possible
Here are four more strategies to help you put away those precious dollars, each and every month:
“The clock is ticking! The strategy you choose for tomorrow will determine how you run your business today!” — excerpt from “Creating an Exit Strategy for the Solopreneur” presented by Leslie Shiner, owner of The Shiner Group
QB Community wisdom:
“It’s hard to retire from the service industry. Right now, if we’re not working, there’s no money coming in. My goal is to be financially safe and sound, so my son doesn’t have to go through the hardships I’ve faced. My son’s picture is the screensaver on my phone. Every day, he’s the motor that pushes me through.” — Gregg Miele, owner of Heart & Hustle Gym
There’s more to think about when it comes to boosting your financial literacy:
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Before you go
QB Community members, what tips can you share to make saving for retirement each month a little bit easier?
Planning for retirement is one of those things that's so easily put off until after this or that financial milestone is reached. Thanks for the reminder that it's important to start TODAY!
Saving for retirement is hard - especially as an entrepreneur. My tip is that I pull the contribution to my retirement directly from my paycheck - so that I can't spend it. When I direct deposit, I automatically have it pulled into a separate retirement account. It's the only way I can stick to it. What about you?