Figuring out how to plan for retirement as an entrepreneur can feel overwhelming. You’re either reinvesting every dollar back into the business or switching gears between periods of feast or famine. Retirement planning doesn’t have to be complicated, especially when self-employed retirement plans provide tax benefits and options to get your savings back on track.
Let’s go over how much entrepreneurs should save and how to stick with it when their income fluctuates. Explore entrepreneur retirement strategies and tips for diversifying investments, adjusting for business growth, and exit planning.
How to plan for retirement when you’re self-employed
When you’re self-employed, you can’t fall back on employer-sponsored 401(k)s with matching contributions. Nor should you assume that your business is your entire retirement plan. Market shifts or unexpected expenses can derail strategies and delay exits.
To protect your future, develop an intentional, flexible retirement plan that aligns with how your business earns revenue. Think about how much you need to save and which self-employed retirement plans fit your life and business stage.
Decide how much to save for retirement
Many small business owners and freelancers struggle with the question: How much should I save? Financial advisers generally recommend saving 15% to 25% of your pretax income, beginning in your 20s. Late savers should aim for 20% to 30%.
To see how much you’ll need in retirement, use a self-employed retirement calculator. Try Calculator.net’s retirement calculator to estimate how much you need, see potential savings plans, and find out how much you can withdraw in retirement. Bankrate’s investment goal calculator is another good option that shows how much to save monthly.
Choose the right self-employed retirement plan
Tax-deferred and tax-free accounts allow entrepreneurs to build long-term wealth while lowering taxable income. Even if you start small, opening an account now gives your investments more years to grow.
Here’s a quick look at the best retirement plans for small business owners:
- Traditional IRA: An individual retirement account (IRA) is easy to open and great for new entrepreneurs with modest or unpredictable income. Contributions may reduce your tax bill, and investment choices are flexible.
- Roth IRA: This retirement plan is funded with after-tax dollars, so withdrawals in retirement are tax-free. Roth IRAs are a good choice when you expect a higher income in later years.
- SEP IRA: A Simplified Employee Pension plan is designed for solopreneurs or small teams. It’s easy to set up and offers high contribution limits tied to your income.
- Solo 401(k): This retirement option is excellent for high earners, late savers, or freelancers who want to make catch-up contributions.
Tips for retirement planning with irregular income
Earnings often fluctuate when you’re self-employed. Rather than waiting for the “right” time to save for retirement, build a strategy around your income cycles. Part of learning how to plan for retirement as an entrepreneur is recognizing that consistent saving, even in small amounts, can offer more security than waiting for a surplus.
Try these tips for retirement planning with variable income:
- Organize your income and budget. To set savings goals, you need to know what you can spare in your slowest months and how much you can catch up throughout the rest of the year.
- Keep a separate savings account. Open a personal savings account to serve as a buffer for slow seasons, tax payments, and retirement contributions.
- Create a percentage-based savings goal. Set aside a percentage of your self-employed income, even in low-revenue months.
- Automate transfers for minimum amounts. Consider having retirement plan contributions withdrawn automatically, even if it’s only a small amount.
- Catch up during high-income months. Meet retirement planning goals using windfalls, like large contracts or busy seasons, to catch up on contributions.
- Review your retirement savings plan quarterly or annually. Look over your cash flow and adjust contributions up or down as needed.
Earnings often fluctuate when you’re self-employed. Rather than waiting for the 'right' time to save for retirement, build a strategy around your income cycles.
Smart investment strategies for entrepreneurs
Tax-advantaged savings accounts are only one part of a small business retirement plan. Diversifying your investments creates a well-rounded strategy. It reduces the risk, as an entrepreneur, of being dependent on a single industry or local economy while building financial independence.
These strategies can help diversify your investments:
- Balance reinvestment and personal wealth. You can grow or expand your business by reinvesting profits, but don’t leave yourself vulnerable. Maintain a healthy split.
- Broaden your investment mix. Real estate, diversified index funds, or dividend-producing investments provide income streams that aren’t dependent on your business performance.
- Consider retirement accounts vs. brokerage investments. Retirement plans offer long-term tax benefits, while brokerage accounts add flexibility for early retirement or mid-career goal changes.
Adjust your retirement plan as your business grows
Retirement planning looks different when you’re just starting a business versus running a company you’ve owned for decades. Investments, tax strategies, and retirement contributions change with your circumstances. When it’s time to update your company’s financial plan, that’s a sign you should review your retirement goals.
Here’s how your retirement strategy might change as your business grows:
- Early: The first step for many entrepreneurs is simply getting started. Roll over old employer plans and set a monthly savings target.
- Mid: At this point, your focus shifts to increasing contributions, reviewing assets, and choosing plans such as a SEP IRA or solo 401(k).
- Late: As you near retirement, planning centers on the business. You want to improve the valuation, update records, and decide whether to sell, wind down, or transfer it to family.
How business owners retire: Exit planning basics
For many entrepreneurs, their company is a major retirement asset. So the way you exit determines the money you have to live on. A retirement-focused exit strategy can help you decide whether a sale, buyout, or hand off will fund your long-term needs. It outlines how you will transition from self-employed business owner to retiree, and everything you need to do in the meantime.
If you plan to sell your business, consider learning how different deal structures affect retirement income and how to prepare your company to qualify for better terms. When transferring to a successor, look for ways to sustain your lifestyle, such as gradually withdrawing equity or structuring distributions.
In many cases, getting a valuation and building business equity are worth it. Documenting processes, cleaning up financial records, and improving profitability are part of any exit strategy for retirement.
Professional guidance for retirement and succession
A financial adviser helps you coordinate business and personal finances, choose the right retirement plan, and manage contributions when income fluctuates. They also work with you to build tax-efficient savings strategies and diversify investments.
During succession planning, advisers offer objective guidance on calculating a business valuation or comparing potential buyers. They can show you how to structure a transition plan so your retirement income meets your goals.
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