The advantages to owning your own small business are many. You have complete freedom over your own goals and schedule, you are following your passion, and you have unlimited potential for growth and success. However, one of the pitfalls of going into business on your own is that you will not have the comfortable pension plan that comes with a solid 9-5 job. If you are self-employed or run your own small business, you will need to take matters into your own hands when it comes to planning for your retirement.
Here are some tips for small business owners thinking ahead to their retirement:
- It’s never too early to start planning! Even if you are in your 20s or 30s and retirement is decades away, the choices that you make now can set you up for the long term. It is much easier to save little bits over a long period of time, and your investment will have more time to grow.
- Identify your ideal annual income by using a pension calculator, and then figure out what you would need to save to achieve that total.
- Don’t forget to include inflation when working out future targets. An average annual rate of inflation is 3.5%.
- A good solution is to use an IRA account to save for the future. This will also allow you to lower your taxes at the same time. There is a specific type of IRA, known as a SEP-IRA, that is designed for small business owners and self-employed individuals which will defray your current taxes and allow you to save for retirement.
- You could also consider an Individual Savings Account or ISA. With this type of account your money can be accessed at any time and all withdrawals will be tax free.
- If you are a solo business owner you can use a Single-Participant 401K plan to save for your retirement.
- Another interesting choice to consider is the Self-Invested Personal Pension, or SIPP. This is a type of pension that allows you a lot more freedom when it comes to where you invest your money. You can choose to invest in stocks, bonds and even property. However, this type of pension can have high administration costs.
- You might consider selling your property at retirement, which will offer you a lump sum that you can use as a pension. With this option, you will have more control over the asset and you will be able to access the money before normal retirement age if you need it. Real estate almost always offers a good return on investment, but this choice means that you will be reliant on the fluctuations of the property market and you will need to sell your home and downsize when you retire.
The retirement plan that you develop as a small business owner will be unique to you and your own needs, but it is a good idea to start thinking of it in advance so you are prepared for when you do want to retire.
Simon Grant writes regarding a vast number of important issues and has written this on behalf of Ulster Bank, a provider of small business accounts.