retirement plan

Retirement Plan Investments: A Small Business Owner’s Priority

Running your own business can be more fulfilling than working for someone else. As a business owner, however, you have to overcome certain challenges to be successful. Amid planning how to reach your business goals and growing your business, you may lose track of your personal funds.

Working with a licensed financial planner helps you manage your finances and ensures you’re making the right investments, like a retirement plan.

Why Should You Invest in Retirement Plans?

About 39 percent of small business owners, according to a Paychex small business survey, aren’t sure they can retire before the age of 65 due to lack of financial confidence. Most of the respondents said they will be more confident about retirement if they can save more.

Meanwhile, a separate report shows one-third of small business owners don’t have a retirement plan. One reason for this is that 44 percent of small business owners plan to retire when they’re over 65 years old. Only one in three plans to retire when they reach the age of 55 or 65.

What about you? Do you have a retirement plan?

retirement planning

As a business owner, you should prioritize investing in your own retirement. Having sufficient funds allow you to enjoy your retirement years rather than to work.

Investing in Your Retirement Plan

You may consider selling your business when the time comes. This could be an enticing option, but it’s a risky strategy, according to Forbes. It doesn’t account for economic recessions, emergencies, and unforeseen downturns that can affect your selling price and your retirement funds.

Instead of selling your business, financial experts recommend starting a retirement account specific for small businesses. This is similar to 401(k) that larger corporations offer. Some accounts would allow you to add your employees, which you can offer when you hire new people.

Your financial planner will help you navigate your accounts, but it pays to learn about them, as well. Here are three retirement plans ideal for small business owners:

  • Self-Employed 401 (k) – this retirement plan only covers self-employed business owners and their spouses. It allows you to contribute both as the business owner and employee. The total contribution is up to $55,000 as of 2018.
  • Simplified Employee Pension (SEP) Individual Retirement Account (IRA) – this can be an alternative to formal profit-sharing plans for employees. It’s easy to set up and maintain, and you don’t need to pay for maintenance. Contributions can either be $55,000 or 25 percent of your annual compensation, which changes due to inflation.
  • Savings Incentive Match Plans for Employees (SIMPLE) IRA – this is ideal if you have fewer than 100 employees. Participants can contribute either $12,500 a year under the age of 50. After 50, you will have an extra $3,000 a year.

Growing your own business is a satisfying investment. But be smart in handling your wealth if you don’t want to lose it in the end. Keep your personal and business finances separate to ensure that you can enjoy your hard-earned money during your retirement years.