5 Retirement Planning Tips from the Experts for the Self-Employed

Business.com / Careers / Last Modified: February 22, 2017

Retirement plans make a simple and effective strategy to ensuring a financially secure future even as you continue to take risks.

Think you are still too young to plan for retirement?

If you are an entrepreneur, you definitely know that your journey is no less than an adventure that is both risky and thrilling.

Secure your financial future with a solid retirement plan that will ensure that you retire richer and happier.

Here are five smart tips from financial experts to coach you from scratch:

1. Keep Your Business and Personal Accounts Separate

Managing personal finances can get super tricky for an entrepreneur who does not have the freedom to pull out a fixed sum of money every month from his income. If you are unsure of your income, you should maintain separate accounts for your business and personal use.

Having separate accounts and credit cards for professional and personal financial needs is conventional wisdom that comes handy for tax planning.

Related Article:Millennial Money: What Should You Do with Your Finances When You Are Young?

2. Be Prudent and Practical With Your Budgeting

An entrepreneur has a volatile income which makes it important to know where the money is flowing whether it is being spent on a business deal or on a personal purchase. Creating a budget will keep you covered against debt and restrict you from making expensive discretionary purchases.

A budget will boost your savings, guard your personal finances against getting depleted during inflation and keep the cash flowing even when your business income swings from substantial to limited.

3. Plan Ahead of Time to Tackle Emergencies

Every entrepreneur needs to be proactive instead of reactive when it comes to planning finances. Start early by creating multiple fallback reserves as they will keep you going even if your business faces a few months of low profit.

Emergency funds keep you covered in the event of emergencies and act a cushion during your retirement.  

Related Article:Baby Boomer Retirement: Avoid a "Senior Moment" In Your Business

4. Automate Your Contributions

If you find it difficult to be diligent with your savings, automate them. Review your past profits and assess your existing assets to set up your monthly savings. Once you have determined a safe contribution, schedule a specific date and automate the transfer amount.

Keep reviewing your spending and savings every month to see if you need to make any adjustments.

5. Take Your Pick From Popular Retirement Plans

There are many profitable investments that are well suited to the financial needs of the self-employed. Leverage one of them to save for your later years while you are still earning and you will be able to secure a safe financial future even with an unpredictable journey. Here are 3 options to make your retirement more comfortable and convenient:

  • Solo 401(k) Contributions

A solo 401(k) plan covers the business owner and his/her spouse. It allows you to make up to 100 percent elective deferrals from your income. The annual contribution limit in this plan is currently set at $18,000 with an additional catch-up provision of $6,000 for those who have crossed 50 years of age.

  • A Simplified Employee Pension Plan 

SEP is designed for small and medium-sized business owners because it has a low start-up cost and covers you as well as your employees. You can contribute up to 25 percent of the employee’s pay and your business won’t be taxed on the earnings made from this plan. The best part of this plan is the flexibility that allows you to make no contributions if the cash flow is tight.

  • Savings Incentive Match Plan For Employees

Related Article: How Companies Are Changing Their Culture to Attract (And Retain) Millennials

This individual retirement account is available to all business owners who have 100 or fewer employees working for their venture. It requires you to make a matching contribution of three percent or a non-elective contribution of two percent of the compensation for every eligible employee.

These retirement plans make a simple and effective strategy to ensuring a financially secure future even as you continue to take risks. You can consult a financial planner to include a sound tax strategy in your retirement plan and nurture your nest egg to enjoy a risk-free retirement.

You may be very busy running your venture but you can’t afford to ignore your future unless you are making surplus cash than you can manage. 

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