By Whitney Johnson
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 qualifications.
- 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 self-employment 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 in 2019.
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.
Whitney Johnson is a Financial Advisor, Women of Wealth Advocate, Empowering Women & Their Finances.
Baseline Investments is a FINRA registered (CRD# 2986898) independent Registered Investment Advisor registered in the state of Nevada, and provides investment management services where client portfolios are managed according to the client’s stated investment goals and objectives.
Disclosure: This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation. Past performance is not indicative of future returns.