6 Steps for Small Business Owners Saving for Retirement

Retirement no longer means relegating to a restful armchair. Today retirement is the biggest risk facing entrepreneurs who are already struggling with the challenges of running a small business in a fiercely competitive market. Here are six simple steps to help you tackle the retirement planning process right from the start:

Getting The Retirement Planning Process Started

Set Up an Investment Plan

The challenges of maintaining a profitable business often take a toll on retirement savings. As entrepreneurs are not a part of any 401(k) plan, creating a retirement reserve often takes a back seat. Small business owners can set up retirement accounts that act as a buffer if your business does not churn out the results you expected from it down the line.

Know What Your Monthly Payments Will Be Like When You Retire

Busy entrepreneurs can easily access their social security statement from anywhere online. A social security statement should give you a fair idea of what you are likely to receive during the retirement period and this will put you in a better position to take a judicious decision regarding tax planning.

Make a Major Contribution Every Month

Financial advisors have always recommended small business owners to start saving early on and make a major contribution following a lucrative business deal or a windfall. Always take some chips off the table and transfer them to your retirement reserve.

Be Sure To Pick A Profitable Savings Vehicle

Financial experts are of the opinion that SEP IRAs, SIMPLE IRAs and solo 401(k)s make excellent investment options for small business owners. You may consult a financial advisor to determine which plan is well-suited to your unique situation.

• A solo 401(k) makes a perfect plan for those who have no employees.
• The savings incentive match plan for employees is another popular option where the overhead cost is much lower and employer is required to make a contribution of 3% of the compensation for every eligible employee.
• SEP or Simplified Employee Pension Plan comes with a much higher contribution limit which goes up to 25% of each employee’s compensation.

While most small business owners typically prefer a simple IRA as it lightens the upfront cost; they eventually roll it over to a 401(k) when expenses become easy to manage. SEP IRAs are recommended for partnership firms or businesses running with fewer employees.

Diversify the Financial Portfolio

Age and risk tolerance play a crucial role in the investment portfolio when allocating funds to equities and bonds. It is advisable to consult a financial advisor on tax planning when investing in REITs and gold.

Consider the Critical Aspects That Affect Retirement Planning

65 is no longer the magical number for many as a variety of factors come into play when you are about to retire. Many societal, personal and government issues can influence your decision to retire early. Government programs and policies, inflation and your existing business situation play a vital role in determining a financially viable age to retire. Another critical factor that has a profound impact on your retirement planning is life expectancy. Given the recent increase in longevity, you cannot afford to ignore the probability of outliving your savings.

It is never too early to start the retirement planning process especially if you are running your own business. With a solid savings plan in place, every entrepreneur can enjoy financial freedom during retirement and continue to build the business over time. All you need to do is follow these six tips and make smarter investment choices using your workable wealth.

Retirement Jar Photo via Shutterstock

This article, "6 Steps for Small Business Owners Saving for Retirement" was first published on Small Business Trends