Retirement for Entrepreneurs
Tips for preparing for your retirement as an entrepreneur no matter where you are in your career
No matter what stage of your career you are in, if you are self-employed, your retirement should be a top priority. If you do not have any retirement savings in place, now is the time to create a portfolio that will start a steady cash flow into your retirement accounts. If you already have a jump start, it is important to ensure you are maximizing your potential. Whether you are early, mid-, or late-career, there are always ways to maximize your savings. Continue reading for tips catered to where you are in your career.
Where to Start for the Early Career Entrepreneur
When you first embark on a self-employed career, there can be a lot to juggle. One ball you do not want to drop is beginning your retirement savings. Here are some steps to get you started.
Individual Roth or 401(k)
Being self-employed, you won’t have the same opportunities for a company 401(k) or corporate matching, however, you can still invest in your future by contributing to an individual 401(k). There are restrictions on the individual 401(k) if you have employees, if that is the case, you will want the option of looking into a Roth IRA.
Consider setting up your retirement accounts with automatic monthly payments. Getting into the habit of depositing money into your retirement account monthly will make it easier to maintain the habit of saving. If you build this habit early, it won't even feel like the money is missing. When setting up these automatic payments, take a look at your budget and be careful not to stretch yourself too thin or feel discouraged that you are not hitting the maximum contribution limits, do not worry, you will get there. For now, contribute what you can, it is a long-term game so focus on what you can do and worry about maximizing the accounts as you are farther along in your career.
When you are starting, it is a great time to either find a financial advisor if you do not have one or to contact your advisor if you do. If you are leaving a company and have retirement accounts and investments tied in with them, it can be a daunting task to convert the funds to an individual portfolio that will work best for you. Your advisor can help with the conversion and ensure your retirement income plan is the right fit for you. Often this will be a healthy investment in your own business as well as creating diversity to your portfolio and other assets.
Mid-journey Savings for the Entrepreneur
For the entrepreneur or self-starter who has created a stable or thriving business and maybe halfway through their journey to retirement, the landscape will be a little different. Below are some tips and considerations to address during the middle stage of your career.
It is Never too Early to Think About Retirement
Start thinking about how you want your retirement to look. This part of the process can be both fun and informative. Ask yourself the following questions:
- How long would you like to stay in the workforce?
- Are you considering working as a consultant or freelance?
- Do you own a thriving business that you would like to sell or perhaps hand off to a partner or family member?
- What do you envision doing with the spare time you will have in retirement?
- Do you plan on traveling?
- Will you be moving somewhere with a lower cost of living, or closer to your family and friends?
Asking yourself questions like these will make the transition into retirement a little less bumpy and give you and your financial advisor a better idea of how your nest egg should look. It will help you in constructing a retirement income plan. (link)
Reassess Your Assets
Mid-career is also a time to reassess your assets and begin positioning them for your retirement. Begin looking at how many of your assets are associated with your business and its profits. Take into consideration how many assets are liquid and ready to be used. Take some time to itemize these assets and begin strategizing how their potential can be folded into your retirement. This is a great opportunity to get back in touch with your financial advisor to help chart out this change.
Maximize Your Contributions
You will also want to look at your savings accounts. Being farther along in your career, you will most likely have more financial stability and can begin maximizing your contributions to your various retirement accounts. If you have not been hitting your maximum amount, now is the time. You may even want to take some of your savings or investments and put them toward your retirement accounts to reach that maximum amount. Of course, do not forget to check the tax penalties to make sure you are not taking the money out too soon.
End Career and Toward Retirement
As you are coming to the end of your voyage, you can see retirement just out of reach. The plans you have laid in your mid-career can begin to take effect. Before you retire, there a few actions you can take to make the transition much smoother.
Give Yourself Time
Selling your business can be difficult, not just for financial reasons but also for emotional ones. You will want to give yourself plenty of time to find the right people and the right price. You never want to wait until the last minute. Selling your business out of the feeling of impatience or desperation to the first interested party is not a position you want to find yourself. Take the time to make sure what you built goes into the right hands for the right price. A deal falling through is another bump that can delay the process.
Don't Put All Your Eggs in One Basket
Make sure to think realistically about the sale of your business. You should think of its sale as one asset of your portfolio and not depend on the sale of your business being your sole retirement fund. When they sell their business, small business owners often receive their payment in disbursements spread over several years. Fold these gradual payments into your retirement plan and do not depend on a lump sum.
Increase Your Savings
Many of the bills that have been consuming a percentage of your salary will most likely be behind you. Getting your kids through college, finishing your last mortgage payment, or completing your last car payment can feel like a victory and open up more flexibility in your spending. As retirement approaches, increase your salary percentage going into your retirement. Increase your savings of 10-15% to an amount closer to 20% of your total yearly earnings.
Being an entrepreneur and striking out on your own is exciting. It also removes some of the protections and benefits that working for a company classically provided. That does not mean you are out in the dark. Just as you took control of your career, you can take control of your finances and let them work for you so you can retire worry-free.