Self-Employed Retirement Plans: What to Consider

Chris Maurer |

From independence and flexibility to the fulfillment that stems from doing what you love, entrepreneurship has many rewards. However, working for yourself also means you're forfeiting the reliable salary and company-sponsored 401(k) that help make planning for retirement a little simpler. Get ready to step away from your business by learning more about some of the retirement options for self-employed individuals and how you can make sure you're prepared when the big day comes.

Plan Your Exit Strategy

Your exit strategy is your pathway out of entrepreneurship and into your newfound life as a retiree. There are many avenues to consider. Closing up shop and liquidating your business is one option. Another is selling your business to a new owner. If you do sell, you can choose to let it go completely or remain involved in some capacity throughout retirement. 

Shaping your goals around realistic expectations helps make the path toward retirement clear. Additionally, formulating these plans in advance will help ensure you're prepared when your prospective retirement date becomes a reality. Some questions to consider include:

  • How long do you want to be in business?
  • What are your financial goals?
  • Do you have to pay off creditors or investors before retirement?
  • How will you choose new leadership and inform your employees and customers?

Deciding the fate of your business when you're ready to retire is a big part of entrepreneurship and how your exit strategy will play out in the end. 

Estimate Your Retirement Nest Egg

The other piece of the puzzle is figuring out what your personal life will look like after retirement. Prepare early, so you can enjoy the payoff later. If you're planning to dive into some new hobbies at home or do some much-needed traveling to see family, it's important to make sure your nest egg is large enough to fund those aspirations. Starting with a solid idea of how much you need for retirement will help make planning with your adviser that much easier.

Minimize Debt

Following your dreams as a business owner requires capital. If you're just starting out as an entrepreneur, most of your savings might need to funnel back into your business. Finding ways to save even a small portion of that for life after retirement will help in the long run. This includes paying off debts.

Whether it's a business loan, investors, or lines of credit, you'll need to make a plan to tackle that debt. The more money you can free up, the more chances you'll have to save and make worthwhile investments for your future. Plan to get ahead of your debt sooner to help avoid losing a large portion of your retirement savings at the end of your career. 

Invest in a 401(k) or Similar Option

Entrepreneurship isn't without its fair share of risks. The financial commitment involved in owning your own business can be great, hindering your ability to build up your personal savings account. This is where smart investment solutions come in handy, such as a one-participant 401(k) plan. From doubling the amount you put away to boosting your potential for tax breaks, having a 401(k) as a business owner comes with many benefits. If you're wondering how to save for retirement without a 401(k), other options include:

  • SEP IRA
  • SIMPLE IRA
  • "Regular" IRA (including Roth version)
  • Profit-Sharing Plan

Each account offers unique benefits, including how contributions and withdrawals are taxed. No matter how you choose to save, a solid plan can help you make the most of every penny sent toward retirement. 

Diversify Your Portfolio

Big or small, the investments you make as a business owner have a direct impact on your retirement savings. What happens if the housing market crashes and all your investments are tied to the real estate industry? You risk losing at least some portion of your nest egg. This is why diversification is key.

Diversification is the practice of spreading your assets across stocks, bonds, and alternatives to help minimize your risk over time. If the housing market crashes, your diversified portfolio could incur fewer losses. Diversifying your assets can help ensure that you'll be able to retain a lot of what you've stashed away, fostering a healthier growth rate overall. 

Increase Your Contributions

Are you a new business owner? From paying your hard-working employees to keeping the lights on, most of the capital earned goes toward running the company. It may not be possible to set aside large amounts of cash for retirement each month until your business truly takes off.

Counteract these challenges by making whatever contributions you can, even if they are smaller than you’d like. A retirement planner can help devise a strategy to make consistent contributions that grow with the success of your business for a more comfortable retirement. 

Learn More About Retirement Planning

Start preparing for the future you’ve worked so hard for. At Park Place Financial, our experienced investment advisors can help create a retirement plan that addresses your current needs as a self-employed individual and your aspirations for the next phase of life. Contact us today for a consultation at our office in Bellaire, Texas.