When you operate your own business, retirement planning often comes as an afterthought to everything else you must do. With no one to set up a plan for you and no automatic deductions from a paycheck, saving for retirement is something that many entrepreneurs are falling behind on compared to their traditionally employed peers.
Slightly more than one-third of self-employed individuals have no retirement savings at all, according to the results of a recent Manta survey. Whether it’s due to retirement planning procrastination, counting on selling the business to fund their retirement, or another common reason, failing to save money for retirement could lead to disastrous consequences for too many entrepreneurs. If you haven’t started saving at all or don’t feel like you’re saving enough, we hope the tips below will be helpful.
Start as Early as Possible, But It’s Never Too Late
Investing money steadily over time is the best way to ensure that you will have what you need when you retire. However, you shouldn’t panic if you’re getting a late start with retirement planning. When you meet with KGBV Advisors, we will assist you in finding ways to maximize your retirement contributions regardless of when you start.
Understand Your Investment Options
An Individual Retirement Account (IRA) is one of the most common retirement investment tools for the self-employed. Both the Roth IRA and the traditional type allow you to set aside up to $6,000 per year if you’re age 49 or under or $7,000 per year if you’re age 50 or over. Although you can have both types of accounts, they can’t exceed the contribution limits.
With a Roth IRA, you pay tax on your contributions now but withdraw money tax-free after retirement. The opposite is true for the traditional IRA, which means you lower your taxable income by contributing but pay tax according to your income level for each withdrawal.
A Solo 401(k) is another popular option for the self-employed. You may contribute up to $50,000 of business income per year if you have no full-time employees.
Diversify Your Contributions
Whether you choose an IRA or Solo 401(k), you can choose where you want to place your funds. Individual stocks and mutual funds are just two of your many options. Some categories to consider for investment include:
Growth and income
Regardless of your approach, diversifying can help to reduce risk and increase return. However, there is no guarantee of this.
Create a Budget to Include Retirement Savings
The general rule of thumb is to save 10 to 15 percent of your net income each month. This can be challenging to do when you must allocate nearly every dollar to other purposes. If you’re struggling to save, you will need to make a budget and some tough decisions. This could include giving up some extras you enjoy now to ensure you will adequate funds saved when you retire.
Request a Free Consultation
Maybe you know you should be thinking more about retirement planning but don’t know where to start. KGBV Advisors is happy to help by offering a free consultation to all new clients.