Retirement Planning for Entrepreneurs

In many ways, running your own small business can be freeing. It means you get to set your own agenda, adhere to your own values, and not have to answer to anyone but your customers. That freedom can be a two-edged sword, however, as entrepreneurs don’t always have access to the resources found in large enterprises—including retirement savings tools.

Indeed, studies have confirmed for years that a majority of entrepreneurs lack adequate retirement planning; and, that retirement is a major source of anxiety and concern.

There are a number of reasons why entrepreneurs don’t set aside the money they need for retirement. Some of the most common ones include:

  • They’re putting everything into the business itself—an understandable instinct, but ultimately one that can leave entrepreneurs flat-footed when retirement comes around. Better budgeting and planning can help ensure there’s enough for the business and for retirement.
  • They assume that they can simply sell their business to fund their retirement—but finding a buyer isn’t always easy, and the business may not be worth as much as the owner assumes.
  • They don’t actually plan to retire, but rather assume they will keep working forever; that’s perfectly fine, of course, but sometimes things happen that are beyond the entrepreneur’s control—things like illness or disability—that make it impossible to keep working.
  • They simply don’t know about some of the retirement planning solutions available to them.

The good news is that there are solutions for entrepreneurs who wish to set aside money for their retirement. The best way to formulate a retirement plan that’s specific to your goals is to meet with one of our wealth advisors—but for now, here are some basics to be aware of.

Retirement Savings Vehicles for Entrepreneurs

When you run your own company, you may not have access to a corporate 401(k)—but there are plenty of other options for building a retirement nest egg. Here are just a few of the options you might consider:

  • With a Roth IRA, contributions are made after tax; that money and its growth are then tax-free upon withdrawal.
  • With a Traditional IRA, meanwhile, contributions are tax-deductible. The money is taxed upon its withdrawal. Note that both of these IRA options are available to anyone with a job—not just the self-employed.
  • Finally, you can consider a solo 401(k)— an extremely powerful tool for business owners who have more that they want to save for retirement than what they are able to contribute to an IRA. Both pre-tax and Roth options are available here.

An advisor from Stonepath can speak with you about the specifics of these options, and help you determine which one is best for your needs.

Once You Start Saving

After you decide which retirement savings vehicle to use, you’re ready to start putting some money away.

  • Understand that a slow-and-steady approach often works best; thanks to the power of compound interest, you don’t necessarily have to set aside huge chunks of money. The important thing is to start saving sooner rather than later, and to make consistent contributions to your retirement account.
  • Working with your financial advisor, come up with a monthly budget that includes contributions to your retirement account—ideally somewhere around 10 percent of each paycheck, though that number is just a general rule of thumb. If it seems unattainable, don’t panic; again, just talk with your financial planner.
  • One more critical piece of advice: Your retirement savings are just that—money you’re setting aside for your retirement. Until that day comes, and until you and your advisor agree that it’s time, don’t touch the money!

These are some general guidelines, but to develop a more goal-specific retirement plan—and to ease any entrepreneurial anxieties—we invite you to reach out to Stonepath Wealth Management today.