6 Ways the Self-Employed Can Prepare for Retirement

Share via

Self-employment brings the joy of being your own boss. It also brings freedom in terms of your future retirement because you don’t have an employer dictating when and how you should retire. However, without the safety net of employer-sponsored retirement benefits, preparing for retirement requires a focused commitment to saving and planning.

Nonprofit Transamerica Center for Retirement Studies® (TCRS) in collaboration with Aegon Center for Longevity and Retirement (ACLR) conducted a survey of the self-employed. In the U.S., the survey findings are quite striking. Only 25 percent say they are either “very” or “extremely confident” that they will achieve a comfortable retirement. Moreover, the survey finds that most are not doing as much as they can to prepare themselves.

According to the survey’s findings, approximately one-third of the self-employed in the U.S. (36 percent) are habitual savers who always make sure they are saving for retirement. Three in five of the self-employed (63 percent) have a retirement planning strategy. However, few have a written plan (20 percent). Perhaps more concerning is that relatively few (39 percent) have a backup plan to provide them with income in the event that they are unable to continue working before reaching their planned retirement.

Six Ways to Start Saving for Retirement When You’re Self-Employed

For the self-employed, preparing for retirement requires a do-it-yourself approach. As a starting point, if you are self-employed, six ways to begin financially preparing include:

  1. Start saving early and get into the habit of saving consistently over time. If faced with an irregular income, save even more during the good years to help make up for the leaner years when it’s harder to save.
  2. Research tax-advantaged savings vehicles to determine which may be right for you, including IRAs, SEP IRAs, Individual 401(k)s, and others. Find out if a local chamber of commerce or trade association offers a retirement plan for members.
  3. Make it more convenient for yourself to save by setting up an automatic funds transfer, for example, from a checking account to a retirement or savings account.
  4. Learn about retirement investing and the types of investments that are most suitable for your risk tolerance and years to retirement. If you prefer to consult a financial advisor, learn enough so you can ask good questions and make informed decisions.
  5. Contribute fully to Social Security. While it may be tempting to under-report personal income to reduce income taxes, it’s important to remember this can reduce future Social Security benefits as they are often based on an individual’s earnings history.
  6. Create a financial plan for yourself and your business that includes contingency plans. A well-developed strategy should address your current and future income needs, savings, investments – and backup plans when things don’t work out as expected. If applicable, consider an exit strategy for your business. This type of planning can be especially complicated for the self-employed, so consider consulting a professional advisor.

While saving for retirement can be challenging, it’s not impossible. Small steps can make a big difference over time. The key is to avoid procrastinating and get started as soon as possible. You can do it.

The full survey report, Retirement Preparations in a New Age of Self-Employment, offers an in-depth portrait of the self-employed, comparisons with employed workers, detailed recommendations, and country-specific findings. Countries featured in the survey include: Australia, Brazil, Canada, China, France, Germany, Hungary, India, Japan, The Netherlands, Poland, Spain, Turkey, United Kingdom, and United States.