A common concern among freelancers and small business owners is whether or not they will ever be financially secure enough to retire. Without an employer-supported retirement plan, many of us don’t have the resources to create a structured savings plan that will carry us in our later years.
The Wells Fargo/Gallup Small Business Index survey conducted last year found that most small business owners don’t plan to “fully” retire. The survey results showed that 38% will retire or cut back on their work at a different time than they had originally planned. And 6 in 10 of these owners will be delaying retirement for financial reasons.
While some of the reasoning behind this is inspiring – nine out of ten small business owners simply enjoy what they do and want to continue doing it – it can be a little discouraging. As self-employed professionals, is retirement a fruitless dream?
The good news is that it doesn’t have to be. Here are some ways you can get on the right track now so you are in a position to retire later on if you so choose.
Consult a Financial Advisor
There’s really no better way to get started planning for retirement than hiring a professional. A good financial planner will be able to take a look at your business and personal finances and help you figure out a realistic long-term retirement plan.
They will analyze your current age and the age you want to retire in order to determine what the “cost” of retirement will be. A financial consultant will be able to make solid recommendations you can start to work on immediately. And ideally, your advisor will also continue to support you as your business grows and life changes to modify your plan so it stays realistic for the long haul.
Consider a SEP IRA
A Simplified Employee Pension Individual Retirement Account (SEP IRA) is a plan available to business owners in the U.S. that provides retirement benefits for themselves and their employees, if they have any.
One of the biggest benefits of a SEP IRA is that there are no significant administration costs for a self-employed person with no employees. Plus, contributions do not have to be made every year, so your contributions can be flexible like your income.
There are also other plans available to U.S.-based businesses you’ll want to explore, such as a Keogh Plan and a Solo 401(k). And if you’re not in the U.S., search for self-employed pension or retirement plans for your location — i.e., a Small Self-Administered Pension Scheme (SSAPS) in the UK.
Get Used to Budgeting
The more familiar you become with your business finances, the better off you will be, not only in terms of retirement, but for the financial health of your business. If you don’t have a rolling budget for your business, create one now. And if you do, keep it current and you can use it to make projections for the future.
The key to any kind of retirement planning, especially for the self-employed, is starting as early as possible, doing your research, understanding your options and making a plan. I will be looking into and formalizing some of these processes myself to create the future I want.
What about you? Are you worried about retirement or do you plan to work as long as you can?
Image credit: Craig Jewell
Alyssa GregoryAlyssa Gregory is a digital and content marketer, small business consultant, and the founder of the Small Business Bonfire — a social, educational and collaborative community for entrepreneurs.
