Growing a small business is one of the many ways to grow your income. With perseverance and hard work, you can maximize your business’ potentials. However, you shouldn’t forget to grow your retirement fund as well. When you save for your retirement, you won’t have to sell your business if worse situations come.
On the other hand, having a solid retirement plan will help you keep your business even when you retire. Here are some ideas to save for retirement while owning a small business:
1. Start Early
Doing business is risky. That’s why most entrepreneurs postpone saving for their retirement. However, the more you should start saving because you don’t know whether you can make it big or lose your business. Sites like Retirement Investments can help you start saving, depending on your retirement goal and your finances.
No matter how financially tight you are as you may be putting all your money into your business, setting aside a portion of your finances for retirement is better. When you start early, you can save more because of compound interest. For instance, if you start saving USD$10,000 every year at the age of 22, you could have twice as much of your savings as starting to save at 32. With a 6% annual interest on your savings, you can have a retirement fund of about USD$2 million dollars at the age of 67. If you started at the age of 32, you could only have about USD$1 million dollars retirement fund.
However, don’t stretch your budget to save a fixed amount. Some may say put in 20% of your finances into savings, but that may cost you a lot. Especially if you’re starting a business, you can save as little as 1% of your finances. Saving the amount that won’t hurt your budget is the way to start. Then, you can save more as your finances grow and become steady. What’s important is to start early and make it a habit to save each month or each year.
2. Consider Retirement Plans For Small Businesses
The next step is to get a 401k even if you’re a startup, small business owner, or a company of one. This is possible because there’s a plan that makes you both the employer and employee, which is the one-participant 401(k) or Solo 401(k) plans. In this retirement plan, you can boost your tax breaks and savings amount by doubling your contributions.
The advantage of this plan is that it allows you to save less when your business is not doing well and more in good years. For instance, if you need more funds to grow your small business, then you’re free not to contribute for that year if you don’t want to.
Another retirement plan if you have few or no employees is the SEP-IRA, with a contribution limit of up to 25% of net self-employment earnings or compensation. However, you get taxed on your distributions in this retirement plan.
Also, you should contribute an equal percentage of salary for your employees, including yourself. So, if you’re contributing 15% for your employees, you also contribute 15% of such for you.
A SEP IRA is similar to 401(k)’s flexibility, wherein you’re not bound to contribute yearly. But, SEP IRA has no annual reporting to the IRS and low administrative burden, making it easier than the solo 401(k) to maintain.
3. Diversify Retirement Plan
Also, it’s best to diversify your funds when you’re saving for retirement. Especially if you lack expertise in analyzing the market, it’s best to invest in various investment opportunities too. Besides your retirement plan, you should also invest in other industries, investment vehicles, and different companies to diversify your retirement portfolio.
As mentioned, if you start early, compound interest will work out for you. Remember, you’re investing for the long term so that when you’re at retirement age, you can have a regular income to rely on.
There are many more ways to save for retirement when you’re doing business, but the mentioned ones are most likely to help you. Start saving even if you have a little budget as long as you start as early as possible. By doing so, you can practice saving, which can help you stay on track of saving for your retirement. You can then consider solo 401(k) plan or SEP-IRA for few to no employees. Lastly, if you’re earning more from your business income, then diversify your portfolio to reduce the risk of losses. By knowing how to save, you can grow your retirement portfolio to enjoy your retirement years.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.