If you’re self-employed, retirement may be difficult to plan. When financial experts recommend setting aside 15-20% of your income toward retirement, it may be hard to plan for it because as an independent contractor or small business owner, you know income is often sporadic. Many factors come into play on a monthly basis impacting your bottom line…clients don’t always pay on time; markets tend to move in cycles; seasonal fluctuations may pinch your company’s cash flow.
You also know bills need to be paid ‒ every month. Once you’ve settled up with suppliers, utility companies, lenders, and everyone else asking for your money, most of your remaining cash may need to be pumped back into the business to keep it up and running. Contributing to a retirement account can seem like a luxury you can’t afford.
You’re not alone. One recent study found that nearly 70% of America’s ten million self-employed workers aren’t saving regularly toward retirement.
Why aren’t you saving for retirement?
Some self-employed business owners expect to finance a secure retirement by selling their company at a profit. But according to the Small Business Administration, 50% of new businesses will fail within the first five years and two-thirds won’t make it to their tenth anniversary. Even if your company survives, the best-laid plans don’t always work out, and there’s no guarantee the proceeds from a sale will be sufficient to fund your retirement.
Look into possible options that fit your needs
Fortunately, several tax-advantaged retirement plan options are available. Some of these plans, such as the Simplified Employee Pension Plan, are easy to establish, and all offer tax-deferred savings and up-front tax breaks. Talk to an advisor and discuss what plan will work best for you, the key is to start saving now.