Entrepreneurship can be an exciting and exhilarating journey with its fair share of ups and downs. At any given stage of self-employment, trying to make your income last in your retirement should be one of your top priorities. As an entrepreneur, you may have the flexibility and freedom that most corporate employees may not have. However, this also means that entrepreneurs do not have the luxury of employer-sponsored plans to fall back on. Xerxes Mullan, the Founding Partner of financial advisory Avestar Capital suggests that entrepreneurs should create a solid portfolio. He is of the opinion that a robust income investing plan with a variety of investments is a must for retirement planning.
The first action an entrepreneur should take is to create a separate business checking and savings account and a credit card. These will be used only for any business expenses that are accrued. This will help you have clear boundaries and concise numbers which are required during tax planning. As an entrepreneur, your income is bound to be volatile. This is why it is crucial to know where your money is being spent – personally and business-wise both. Therefore, it is vital to have a flexible budget to account for the unpredictability of your income. Cut expenses when you have a lean month and limit your expenditure when you have an especially good month so that you have stability and can maintain your savings plan.
You may face certain unexpected expenses, and it is important to create a cushion to fall back on during these times. Plan ahead and have an emergency fund set aside. Have anywhere between 3-6 months’ worth of household expenses that can get you by when you experience low earnings. Additionally, keep a separate fund in case an emergency arises. While these tumultuous earnings might make saving difficult, you can look at your past earnings and calculate an average. Based on this number, set up an automated transfer to your retirement account instead of doing it manually. Make sure to regularly review your finances and calculate your spending and saving accordingly. When you have a good month, try contributing more towards your retirement account.
A Solo 401(k) is a 401(k) that is designed for a business owner who has no employees and covers the person and his/ her spouse. The contribution limit is a total of up to $58,000 in 2021 and $61,000 in 2022, with an additional $6,500 catch-up contribution if 50 or older. A Simplified Employee Pension IRA (SEP-IRA) is like a traditional IRA for entrepreneurs or small-business owners that allows for a contribution of up to 25% of each employee’s salary. While this is a basic individual retirement account, contributions made are tax-deductible. A SIMPLE IRA or Savings Incentive Match Plan for Employees IRA is a tax-deferred retirement savings plan that small businesses with 100 or fewer employees can use. Employers can make a non-elective contribution of 2% of the employee’s pay or a dollar-to-dollar matching contribution of the employee’s contributions to the plan up to 3% of their salary.
Another crucial consideration for all entrepreneurs is to consider investing in other businesses in your industry or any other industry. Apart from investing in your own company, you should try to diversify your portfolio and assets. Seasoned professionals at financial advisories such as Avestar Capital can help you navigate the best route when it comes to rolling over your savings. Decisions about how you plan to spend your retirement or how you envision it will have an impact on your retirement planning as well. You could consider staying on with your company as a consultant or even freelancing. The amount that you can contribute depends on the type of account you have chosen, and your accumulated savings can be invested into your retirement already. Be mindful of tax penalties if you make early withdrawals. By the time you get to the last stage of self-employment, where you are planning to either sell your business or retire, you should have reduced your personal debt. Selling any business requires copious amounts of planning and organizing and you should start preparing early if you plan to sell your business.
Lastly, while you are planning your retirement you should also pay attention to your health care needs. As you grow older, health care expenses are bound to increase and will require a more significant chunk of your income. Instead of facing a financial burden owing to your healthcare needs, you can open a Health Saving Account (HSA). They have high-deductible health plans and offer triple tax advantages, including deductible contributions, tax-deferred growths and tax-free distributions for all qualifying medical expenses. Your HSA funds can also pay for some medical premiums and long-term care insurance premiums.
A financial advisor will help you strategize for all of the points as mentioned above. Certain financial planners and financial advisories specialize in retirement planning. They have the right expertise and can guide you as an entrepreneur on how to maximize and optimize your investments. When you have to make tough business decisions, you can look to them for guidance and support. Financial advisors will help you become financially independent, meet your retirement goals and wade through the complexities of investments, tax savings and more.