You’ve got your small business up and running, and you’re starting to see the results of your hard work. So now is the time to start thinking big picture. Really big picture. What will you do once you retire?
One downside of being self-employed is there is no big corporation looking out for your retirement. No one is funding a pension or matching 401k contributions. It’s all up to you. So putting together a long-term plan sooner rather than later is essential to your financial well-being. The first step is figuring out how much money you’ll need in your golden years. Some use a simple rule of thumb called “The Rule of 25.” Basically, you figure out how much money you’ll need annually once you’re retired and multiply it by 25. Keep in mind this is just a rule of thumb, your own individual needs will vary.
There are also lots of online calculators to help you. Nerdwallet has an easy interactive calculator on their site.
Once you figure out how much money you’ll need, you also need to figure out where to put your retirement savings. Nerdwallet suggests several retirement savings plans, and what type of self-employed worker they best benefit.
Traditional or Roth IRA – Best for: “Those just starting out, or saving less than $6,000 a year.”
Solo 401k – Best for: “A business owner or self-employed person with no employees.”
SEP IRA – “Self-employed people or small-business owners with no or few employees.”
Simple IRA – “Larger businesses, with up to 100 employees.”
Defined Benefit Plan – “A self-employed person with no employees who has a high income and wants to save a lot for retirement on an ongoing basis.”
Whichever plan you decide is right for your situation, start saving sooner rather than later. At Versatel Solutions we can help you with every-day tasks so you have more time to keep your eyes on the big picture and longterm goals.