Being your own boss comes with its own responsibilities, including securing your financial future for retirement. 70% of small business owners do not have the financial security to retire by age 65.
Even if you intend on working for the rest of your life, unforeseen circumstances like reduced profits or illnesses that prevent you from working could leave you struggling to feed yourself.
So, how do you prepare yourself as an entrepreneur for retirement when you have no boss who automatically pays into your retirement fund?
Have and Stick to a Budget
Financial responsibilities never end whether your business makes $1,000,000 or $10,000. Therefore, commit to saving at least 10-15% of your income.
Having a written budget that you refer to every month will keep you disciplined and on track to investing in your retirement.
Most business owners reinvest all or most of their profits into business growth, a smart move. But if it comes at the expense of your retirement investments, then you might end up without any assets when you retire.
Know Your Options
As an entrepreneur, you should learn the investment products available for self-employed individuals and choose one or more that appeal to you. The common retirement investment options include:
- Roth IRA, where you invest your money after-tax and do not pay taxes upon withdrawal. You can contribute a maximum of $6,000 per year if you are under 50 and a maximum of $7,000 per year if you are over 50.
- Traditional IRA where you save before tax, but you must pay taxes upon withdrawal. As with Roth IRA investment products, you cannot contribute more than $6,000 per year.
- Solo 401(k) is ideal for entrepreneurs who want to save more than $6,000 per year. It is a great option that allows you to contribute up to $50,000 of your pretax income every year, particularly if you do not have permanent employees.
Keep your funds for retirement, and do not withdraw prematurely based on the whims of the market.
Increase Retirement Contributions as Your Business Grows
It’s harder to set aside more for your retirement during the early stages of your business, but as your business grows, you have more to invest in securing your future.
Consider having an automatic savings process for your retirement investments as it saves you the decision-making hustle and allows you to make your contributions regularly without fail.
Automatic contributions also allow you to prioritize savings and investments over spending.
Diversify Your Investment
As the saying goes, don’t put all your eggs in one basket. Instead of reinvesting all your profits into your business, you should invest some into your retirement portfolio. Whatever assets you invest in should be independent of your primary business so that they can cushion you long after the life of your business.
Your retirement investment should be something that grows over time. Saving just for the sake of it subjects your money to outside factors such as inflation, which could lower your purchasing power.
Some entrepreneurs intend for their businesses to become their retirement plan by selling that business. If this is your intention, you must assess your business’s value to determine whether it can support you through retirement.
Diversify your retirement saving portfolio across various products to secure your financial security in retirement. You can spread your funds among different asset classes, e.g., real estate, crypto, precious metals etc. Cryptocurrencies like Bitcoin are a great investment when you’re looking for a bit more risk with higher upsides. Open an account with a Bitcoin exchange like OKEx to start investing. You don’t want to invest a large percentage of your funds into this given the volatility but it can produce great profits.
Last but not least, focus on starting today. The more you can invest when you are young, the more you give compound interest an opportunity to work in your favor.
Matt Shealy is the President of ChamberofCommerce.com. Chamber specializes in helping small businesses grow their business on the web while facilitating the connectivity between local businesses and more than 7,000 Chambers of Commerce worldwide.
Retirement stock photo by Andrey_Popov/Shutterstock