6 Steps for Small Business Owners Saving for Retirement

retirement planning process

Retirement no longer means relegating to a restful armchair. Today retirement is the biggest risk facing entrepreneurs who are already struggling with the challenges of running a small business in a fiercely competitive market. Here are six simple steps to help you tackle the retirement planning process right from the start:

Getting The Retirement Planning Process Started

Set Up an Investment Plan

The challenges of maintaining a profitable business often take a toll on retirement savings. As entrepreneurs are not a part of any 401(k) plan, creating a retirement reserve often takes a back seat. Small business owners can set up retirement accounts that act as a buffer if your business does not churn out the results you expected from it down the line.

Know What Your Monthly Payments Will Be Like When You Retire

Busy entrepreneurs can easily access their social security statement from anywhere online. A social security statement should give you a fair idea of what you are likely to receive during the retirement period and this will put you in a better position to take a judicious decision regarding tax planning.

Make a Major Contribution Every Month

Financial advisors have always recommended small business owners to start saving early on and make a major contribution following a lucrative business deal or a windfall. Always take some chips off the table and transfer them to your retirement reserve.

Be Sure To Pick A Profitable Savings Vehicle

Financial experts are of the opinion that SEP IRAs, SIMPLE IRAs and solo 401(k)s make excellent investment options for small business owners. You may consult a financial advisor to determine which plan is well-suited to your unique situation.

  • A solo 401(k) makes a perfect plan for those who have no employees.
  • The savings incentive match plan for employees is another popular option where the overhead cost is much lower and employer is required to make a contribution of 3% of the compensation for every eligible employee.
  • SEP or Simplified Employee Pension Plan comes with a much higher contribution limit which goes up to 25% of each employee’s compensation.

While most small business owners typically prefer a simple IRA as it lightens the upfront cost; they eventually roll it over to a 401(k) when expenses become easy to manage. SEP IRAs are recommended for partnership firms or businesses running with fewer employees.

Diversify the Financial Portfolio

Age and risk tolerance play a crucial role in the investment portfolio when allocating funds to equities and bonds. It is advisable to consult a financial advisor on tax planning when investing in REITs and gold.

Consider the Critical Aspects That Affect Retirement Planning

65 is no longer the magical number for many as a variety of factors come into play when you are about to retire. Many societal, personal and government issues can influence your decision to retire early. Government programs and policies, inflation and your existing business situation play a vital role in determining a financially viable age to retire. Another critical factor that has a profound impact on your retirement planning is life expectancy. Given the recent increase in longevity, you cannot afford to ignore the probability of outliving your savings.

It is never too early to start the retirement planning process especially if you are running your own business. With a solid savings plan in place, every entrepreneur can enjoy financial freedom during retirement and continue to build the business over time. All you need to do is follow these six tips and make smarter investment choices using your workable wealth.

Retirement Jar Photo via Shutterstock

More in: 8 Comments ▼

Rick Pendykoski Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments.

8 Reactions
  1. Kenneth E Nusbaum

    Do not retire until you have identified a community composed of people with exciting ideas and activities. Without an active strong community, without work, retirement is a wasteland for those of us who hoped to make the whole place better, or at least more interesting.

  2. It is better to have an investment than a retirement plan. This way, your money grows over a period of time so you’ll have some savings in time for your retirement.

  3. Mark B. Garrett DVM

    Do not work your butt off as a vet and miss out on your over all picture. If you are not taking time to reflect on the improvements needed to keep up and the future of you and your assets, which you are one of them, then your success and happiness WILL be diminished.

  4. Legitsmallbusiness

    Building your business to the point that it will run successfully without you actively engaged in it should be part of your plan for retirement.

    • This is true and I agree with this point. You’ll be able to have time for the things you truly want and yet, somehow, care little about the money. That would be a good life!

  5. Thanks, Kenneth, Ivan, Mobopreneur, Mark B. Garrett DVM, Ethan Benjamin for stopping by and sharing your view.

No, Thank You