Entrepreneurship is just one avenue to the proverbial ‘American Dream’ and for some it is the answer to many of life’s desires; personal freedom, financial
freedom, being your own boss, creating a lifestyle, among others.
The road to building a successful business is exciting and one in which many
devote excessive amounts of their time, ideas, emotions, creativity and
resources, all for the common goal of creating success. As an entrepreneur
myself, I was curious how many entrepreneurs actually invest in their own future by planning for their retirement. To no surprise less than 40% of those I
surveyed have a retirement account and of those 40%, even fewer contribute to
their retirement account on a regular basis. Coupling these statistics with the
well-known fact that women make less money and live longer than men, it seems as though women are setting themselves up for difficulty in retirement years.
It is never too late to get started, but the longer we wait the less ground can be
made up. Here are 3 recommendations to retirement for entrepreneurs:
- Keep your funds separate. Your company finances should be kept
separate from your personal finances, so part of your checklist when
starting a new venture should be to open new checking and savings
accounts and a separate company credit card.
- Automate your savings. Although regular bi-weekly paychecks may not
be part of your current status, commit to setting aside a set amount per
paycheck. Once you have your personal budget determined, decide what
percentage or flat dollar amount you can set aside each paycheck to put
toward your retirement. In times of unexpected expenses, remain
committed to setting aside some amount even if it is minimal. There
inevitably will be a time when you will be able to ‘catch up’, so remain
committed to the regular retirement contributions. When you are able to
receive regular monthly pay, automate the transfer to your retirement
account. This relieves you from having to remember to do it every month.
If it’s automated, that’s one less thing for you to have to remember.
- Leverage one of these retirement accounts for entrepreneurs. There
are several types of retirement accounts designed for small businesses. It
is important to select the correct retirement account for proper tax
- Solo 401(k) – A Solo 401(k) is a 401(k) that covers a business owner
with no employees or that person and his or her spouse. A business
owner can make elective deferrals of up to 100 percent of earned
income up to a maximum annual contribution of $19,000 in 2019.
$19,000 in 2019. If you are age 50 or over, the catch-up contribution
limit will stay the same at $6,000 in 2019.
- Simplified Employee Pension IRA – A SEP IRA is a retirement
account for entrepreneurs that allows for a contribution of up to 25
percent of each employee’s pay (and 25 percent of your net selfemployment income). Annual contributions are limited to the smaller
of $56,000 or 25 percent of compensation for 2019.
- Savings Incentive Match Plan for Employees IRA – A SIMPLE IRA
is a retirement plan designed for and available to any small business
with 100 or fewer employees. The employer is required to contribute
either a matching contribution of 3 percent of compensation or a 2
percent non-elective contribution for each eligible employee
(meaning the employer contributes even if the employee doesn’t).
An employee can contribute $13,000 in 2019. If you are age 50 or
over, the catch-up contribution limit will stay the same at $3,000
It is clear that being an entrepreneur has its many benefits. When it comes to
planning for your retirement as an entrepreneur, there’s nobody else to look out
for you, and that makes you your only advocate for your retirement future. With
consistency and automation, you can get yourself set up on the right path to a
successful retirement and continue to enjoy your freedom and independence
while you build your business.
For more information on planning for your future retirement or for investment
advice, please contact us.