Being a small business owner means choosing the path less traveled. Building a successful and profitable business is hard work. One of the biggest challenges is one of the biggest benefits; the freedom.
You have all the control and all the freedom to make money with your business. What you don’t have is the structure and resources of an established business. There’s no built in HR department, no employer matched retirement accounts to take advantage of.
For many small business owners, the focus is on generating income and turning a profit for their small businesses. Retirement savings or plans often fall to the side. And since you need to set up your own accounts as a small business owner, it’s an easy thing to procrastinate. But if you want to retire someday, you need to plan for retirement while you’re building your business.
Can Small Business Owners Ever Retire?
The short answer? Yes, with the right planning. The long answer is that small business owners have resources available to them for retirement, but they need to be motivated to set those resources up and fund them.
When you work for an established company, you might have access to something like a 401k or a 403b retirement plan. When you’re a small business owner, those are not options. However, you can open and fund accounts like a solo 401k or a SEP IRA. Both of these accounts were created with self-employed people in mind, so they’re great options for the small business owner. You also have the option of opening a Roth or Traditional IRA for yourself.
All of these accounts should be your first move if you work for yourself. Once they’re open, you should fund them regularly. How much you put in will depend on many things, but a good baseline should be 10-20% of your income.
Design Your Retirement
For most people, it’s hard to envision our lives 30 years from now. People are programmed to focus on the NOW. That works for and against us as small business owners. It helps us build our business today, but it hurts our retirement plans.
Sit down and plan out what you’d like your life to look like when you’re 70 years old. Do you want to live in the same house? Are you planning on traveling? Even a basic outline will help you understand how much money you need to live that lifestyle. Once you have a rough estimate of what it will cost to live your retirement lifestyle, you can reverse engineer your saving. If you need $1 million in retirement and you have $50,000 now, you can figure out how much you need to save per year to reach your goal.
Small business owners need to have their own back when it comes to retirement. Without planning you’ll end up working longer than you may like. It takes a little work upfront, but once your retirement accounts are set up they start working for you.