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So, you’ve been working for yourself for a couple of years and you feel like you have everything taken care…
So, you’ve been working for yourself for a couple of years and you feel like you have everything taken care of. You have systems in place for payroll, rent, inventory, and other expenses. You track your cash flow and pay your taxes. You’ve even mastered time management and are spending more hours with your family and friends, doing things you love. While it is to your credit that you have your business under control before you completely relax be sure that you’re not forgetting about one important component of your financial well being – your retirement.
Entrepreneurs may not be saving enough for retirement
While you may be enjoying your self-employed life, chances are that at some point you won’t be working anymore. You may decide that you want to travel, spend all of your time with your family, or you simply become tired of the daily grind required to make a business prosper. Alternatively, health issues as you age may make working too difficult to continue. When that time comes, it is best to have a plan.
Unfortunately, retirement comes last for many people who are self-employed. A recently released survey from the Transamerica Center for Retirement Studies showed that while many self-employed individuals want to retire on their own terms, they’re simply not saving enough to make this happen. They compiled responses from 755 entrepreneurs that showed that while many of these workers are enjoying life, they expect to be beyond traditional retirement age when they stop working. Only 26 percent of them are looking forward to retirement and their savings processes reflect this. 55 percent of survey respondents said they were consistently saving while 30 percent said they were just saving “from time to time.” An incredible 15 percent reported that they never save for their post-work future.
What self-employed workers can do differently
Though many entrepreneurs may not be as ready for retirement as others, they can make changes that will help them better prepare for their future. There are several types of retirement vehicles available for them to use. One of the most basic is a traditional or Roth IRA, which allows workers to save up to $6,000. If someone would like to put aside significantly more money, a solo IRA or a defined benefit plan may be what they’re looking for. If an entrepreneur has employees, they may want to consider a SEP IRA or a Simple IRA. Determining what is best for any business can be complicated. Your accountant or a trusted financial professional can help you answer any questions and choose the best plan for your situation.
Other things to consider
In addition to retirement savings, self-employed individuals are likely to not be taking care of other kinds of future-based supports including health insurance, life insurance, disability insurance, and long-term care insurance. This could be a huge mistake as a catastrophic illness or injury can occur to anyone and can prove devastating for financial security.
It can be easy to put off a decision in these areas because you think you have more time down the road. Don’t. It is much smarter to plan for these financial supports early and to maintain the policies through the duration of your working life. That’s because providing these kinds of supports only becomes more difficult as a worker ages and the likelihood that they’ll need to use their insurance grows. For example, long term care insurance can get prohibitively expensive the closer you get to becoming old enough to need it. In addition, some disability policies cease to pay out past a certain, older age when workers are likely to be eligible for other benefits. Just as with retirement planning, a retirement professional can help you determine exactly what you need.