By John Rampton
I've always had a vision of what my life would look like. I'm goal-oriented, and all of my time, energy and thoughts have been focused on my entrepreneurial career -- and not so much on my personal life. Once I got married, I started to think about savings, an emergency fund, and retirement (in passing). Now that my daughter has arrived, things like life insurance, college funds, and a more important concentration on investment accounts are at the top of my mind.
A 2013 survey from TD Ameritrade found that 70 percent of entrepreneurs aren't contributing to a retirement plan, 40 percent of self-employed individuals aren't saving regularly, and 28 percent aren't saving at all. The survey also found 29 percent of self-employed individuals in Generation X and 32 percent in Generation Y aren't saving for retirement.
It's quite common to hear a millennial entrepreneur say they haven't given retirement much thought. After all, it's a lifetime away -- or so it seems. The only problem is that life actually starts speeding up, and before you know it, the amount of time left to put money away for retirement has shrunk considerably. As an entrepreneur, you can't allow yourself to think that you'll generate enough income to see you through retirement as soon as your startup becomes successful. You also can't think selling your business will be the answer for those missing retirement funds.
If you are one of those entrepreneurs who struggles to strike a balance between investing in your business today and investing for your future, consider these retirement tips that I've found to be useful:
Establish an automatic savings plan for retirement. Even if it only involves a small amount, contributing regularly is much better than contributing nothing and thinking you'll just invest larger amounts later on. The truth is that "later on" may never happen.
Open a Simplified Employee Pension (SEP) IRA. This is designed for self-employed individuals and small business owners, and is similar to a traditional IRA. The tax break offered can be ideal for those who are burdened with self-employment taxes, as this type of savings can offset a small part of that tax expense. Consider an individual 401(k) plan. You can contribute to this plan if there aren't any employees in your small business other than yourself. This type of 401(k) follows the same guidelines as a regular 401(k), but you can contribute as an employer and an employee with a certain maximum total amount being declared each year. It can be a traditional or Roth IRA. Investigate both traditional and Roth IRAs. A traditional IRA defers your taxes, so you get a break while you're contributing, but your withdrawals will be taxed later on. A Roth IRA is just the opposite, so you will need to consider which option is best for your financial and tax situation. Take a look at options to try other plans. A profit-sharing plan is ideal for a business with varying profits and contribution schedules. A money purchase plan requires that a fixed percentage of your income be contributed each year. A defined benefit plan is essentially a traditional pension plan. You start with what you want to be paid at retirement, and then an actuary determines the minimum funding levels you will have to produce each year to make that happen. Meet with a financial advisor. Go over your options and get sound advice on your individual situation, needs and retirement goals. I've found percentages work best for me. For example, you could start by adding 1 percent to your savings. It's small enough not to notice. In six months, you could start putting in 2 percent. Remember, this all comes out of pre-taxed income. Then, bump it up to 5 percent. Put all of your bonuses into your savings account, and bingo, 7 percent of your gross salary is going into savings, and you wouldn't have even noticed. If you are afraid to begin the process, just start out small and you'll be well on your way to planning successfully for retirement.John Rampton is the founder of Palo Alto, California-based Due, a free payments company specializing in helping businesses bill their clients easily online. You can connect with him @johnrampton.
