For the self-employed, it can be tempting to forget some of the basics associated with long-term financial planning.
When you’re trying to get your business off the ground, you’re more interested in the day-to-day of survival. You do, however, still need to remember to prepare for the future with retirement planning.
After all, even as a self-employed business owner, chances are you’ll want to retire at some point — or at least cut back on your heavy involvement with the business.
Here are three retirement-saving tips for the self-employed:
Get Started Now
The #1 rule of retirement planning (or any investing, for that matter) is to get started now. Even if you don’t feel like you have “enough” money to get started, you should begin investing in a retirement account.
Anyone can open an IRA with a relatively low initial investment with an online brokerage, and it’s possible to contribute as little as $50 or $100 per month. While it doesn’t seem like much, developing that habit can pay off over time — not to mention you’re taking advantage of compound interest to maximize your money (no matter how little you have right now).
Look at Alternative Plans
We’re so used to thinking of retirement plans as being attached to work done for “the man.” However, the company 401(k) isn’t the only retirement option out there.
Not only is there a Solo 401(k) designed for the self-employed, but there are also other retirement plans for business owners — like the SEP IRA, which can provide you with even more favorable terms and the ability to contribute a great deal of money each year.
As your business grows, look into retirement plan options that allow you to set more money aside as a business owner. You’ll end up with higher contributions, and have the ability to build your nest egg much faster. Don’t assume that just because you don’t work for someone else, there is nothing available to you.
Plan for Erosion
The reality of any investing is that your real returns are going to be eroded. You need to pay investing fees and retirement plan fees, as well as taxes. Inflation will also play its part in reducing your spending power as time moves forward. It’s important to plan for these realities and do what you can to minimize their impact on your future wealth.
Compare investing fees with various plan options and accounts. Also, consider your current and future situation to determine what types of accounts can help you minimize your tax liability. And, while you can’t get rid of inflation, it is possible for you to overcome it with the right investing strategy and a properly allocated portfolio.
It might seem like an unnecessary distraction, but the reality is that even the self-employed need to start their retirement planning now. Make it a point to evaluate your long-term retirement needs and create an action plan — and don’t forget to adjust your plan and contributions as your business finds success.
If you’re self-employed, how are you saving for retirement?
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