By their very nature, entrepreneurs should be set for life financially. They are accustomed to dealing with risks and rewards on a daily basis—not to mention setting goals in motion. Despite this expertise, a Manta survey of startup founders shows that a full third of entrepreneurs have not socked away anything for retirement.
Why the delay in preparing for the future? Common excuses run the gamut from not having savings in place to being swamped with student debt. But if you ask me, none of those excuses holds water.
Even during Mark Cuban’s leanest days, he lived so frugally that he could always add to his growing nest egg. As he mentioned in an interview with CNBC, he never aimed to become a billionaire—he merely wanted to retire in style as young as possible and be able to live off the wealth he accumulated as a young adult.
What Cuban realized was that retirement is every bit as important for entrepreneurs working 60 hours a week (or more) as it is for your average nine-to-fiver. And with a bit of thoughtful planning, a comfortable retirement is more than manageable.
The challenges and advantages of self-funded retirement
Without a doubt, self-employed individuals face unique circumstances when it comes to growing their retirement accounts. They rarely have regular income streams, which makes mapping out financial security a challenge.
One report indicates that 37 percent of entrepreneurs feel like their income is too low to sufficiently put aside retirement funds. It can feel overwhelming to save for retirement when you are struggling to make ends meet. Even when things are going well, entrepreneurs know the world can fall apart without warning.
Another issue stopping founders from saving is not being pushed into it. They cannot rely on someone from human resources to remind them to beef up their 401(k) plan. And while a financial advisor can lend a hand, it can seem daunting to carve out time for that meeting amid running a business.
Many entrepreneurs would prefer to invest every spare dime into their fledgling businesses; they focus on today rather than 30 years in the future. They assume their businesses are their retirement plan and an exit strategy is just a waste of energy. Those same founders are then shocked at how little they receive on the market for their businesses—and how quickly the money disappears.
Despite these barriers to a rock-solid retirement plan, entrepreneurs do have a few advantages. For instance, a solo 401(k) can be a saving grace. This vehicle takes the place of an employer-run counterpart, allowing founders to contribute up to $18,000 annually (and potentially more based on age qualifications). Although entrepreneurs do not typically enjoy an employer match, they can still gain a foothold in the retirement world.
In short, entrepreneurs who crave a healthy retirement have more opportunities than they might think to ensure a comfortable lifestyle long after their days of endless work are history.
Taking charge of your own retirement
Feel as though your retirement planning has gotten off to a slow—or perhaps nonexistent—start? These strategies should get you back on track to beef up those funds for your golden years.
1. Separate your personal and business accounts.
You might have jumped into entrepreneurship with a personal checking account and a self-named PayPal account, but you owe it to your growing business to separate your funds. By clearly delineating business funds from your personal finances, you can better understand what you are actually bringing home. You can also begin to plot out the best ways to set aside chunks of money for your retirement.
2. Create savings and emergency funds before retirement monies.
Although it can be difficult when you first start your business, stash away cash to use in case your business tanks and you cannot pay yourself. Generally speaking, you should have enough money to cover at least three months of expenses. Once you have stockpiled an emergency fund, create a fallback account for basic savings. When you are comfortable with the level of both accounts, you can start moving excess money into retirement vehicles.
3. Automate your retirement savings.
Have you found the best place to set aside your retirement savings? Set up your bank to automatically withdraw a certain amount of money each month and deposit it into your account of choice. Never rely on yourself to keep up with this—you will likely forget about it when business picks up or be hesitant to save when times are tough.
4. Keep paying into Social Security.
Rather than pay as little into Social Security as possible, keep your reported income at moderate levels. A failure to maintain your Social Security payments could mean you will not be eligible for as much money when you start receiving checks at age 66 or older.
5. Plan an exit strategy at least three years in advance.
Determined to sell your business and roll the profits into retirement? Make sure your brand is attractive and in great financial shape. Consider how your company will look to potential buyers, and get an independent valuation a few years before you attempt to sell. Consider every financial aspect of putting your organization on the market, including tax burdens that could steal from funds you have earmarked for retirement.
Even if retirement seems a lifetime away, it will be here sooner than you think. Your business undoubtedly has you hustling to keep numerous plates spinning, and it is only natural that retirement becomes an afterthought in all the chaos. The last thing you need is to work hard to build a successful business only to find yourself struggling in retirement because you failed to plan ahead.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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