If you’re self-employed, retirement may be the last thing on your mind. When financial gurus recommend setting aside 15-20% of your income toward retirement, your eyes may glaze over. After all, as an independent contractor or small business owner, you know income is often sporadic. 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 all those other folks clamoring for your money, most of your remaining cash may need to be pumped back into the business to keep it afloat. 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 not?
Some self-employed business owners expect to finance a secure retirement by selling their companies 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.
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.
Whether you’re working for someone else or enjoying the flexibility (and enduring the stresses) of self-employment, the key is to start saving now.