Being a self-employed business owner comes with many advantages—but the challenges are real, too. The entrepreneur doesn’t have the luxury of benefiting from an employer retirement match, after all (at least not one that doesn’t come out of your own pocket!) and also has an additional burden of self employment tax. With that in mind, retirement often falls further down the list than it does with rank and file employees. For business owners, here are a few things you should have in place as you plan for your own retirement.
1. Setup a retirement plan. Without something in place, you won’t be able to contribute. Opening the account is the first step, and many times the biggest hurdle. At a minimum do a Traditional or Roth IRA. They can be opened with just $500 or less. You can contribute $5500 per year, or $6500 if you are over age 50. There are many retirement plan options available. Stonepath Wealth Management can help you decide which type of retirement account will be best for your situation.
2. Setup systematic contributions. Employees of large companies have their contributions automatically deducted, so why shouldn’t you? Choose an amount that you know you can stick to, even if it’s only $100 per month.
3. Have an emergency fund. Business owners not only have unexpected home repairs, auto, and medical expenses, but also a business that could face a crisis where additional funds are needed. A good rule of thumb is to have 3-6 months of personal expenses readily available and 6-12 months of business expenses put away for unforeseen emergencies.
4. Shoot for 15%. Start early, too. If you save 15% of your income each year beginning at age 25 and invest it wisely in diversified investments, retirement should be well within reach by age 65.
5. Work with a tax advisor. Be proactive about your planning. If you do your own taxes each year, you aren’t able to ensure you maximize deductions available to you. You need to save as much as you can on your taxes.
Finally, know that Stonepath Wealth Management is here to assist you. For more information about how we help entrepreneurs and business owners plan for retirement, contact us today.