Entrepreneurs who have not begun saving for retirement have little time to waste. Understandably, they might question how they can reserve money for tomorrow amid rising inflation and a wavering economy.
Regardless of current markets, ensuring you have enough to cover living costs when you retire is critical. Here are ways business owners can build wealth and secure their futures.
Most People Are Behind on Saving for Retirement
According to a 2023 Bankrate survey, nearly 60% of Americans say they are behind on retirement savings. Ideally, most workers agree they must put away $1 million to live comfortably, yet one in four respondents had not contributed in a year.
There are several reasons why retirement savings are lagging. Many people lost their jobs during the COVID-19 pandemic. Then, as the world reopened and inflation rose, industries laid off thousands of workers, throwing a wrench in career stability.
People have clung to their wallets rather than put money away for the future. Different life situations have also prevented some from saving. For instance, rent, groceries, health care, transportation and other essential goods are far more expensive than a few years ago.
Yet, experts strongly recommend saving for retirement anyway with whatever you can afford. It does not matter how old or what stage of life you are in — it is never too late to start.
Financial Uncertainties in Running a Business
As gratifying as it is running a business, entrepreneurs encounter plenty of financial hurdles that impact revenue and monetary security. Some situations are in your control, while others ultimately depend on the state of the economy.
The most common uncertainties you may face as a business owner include the following:
- Fluctuating income making it challenging to plan for retirement and predict financial security
- Operational costs, unforeseen expenses and slower transactions impacting revenue
- Market fluctuations and economic downturns
- Difficulty managing debts
- Labor costs
- Advancing technologies hindering your business or industry
- Growing competition and an inability to adapt to a changing market
- Unpredictability, including pandemics and natural disasters
- Changes to policies and regulations impacting your business
These circumstances can make entrepreneurs feel unsettled with their current and future finances. However, careful strategizing can help you grow your brand and create a financial buffer for when you are older.
5 Ways Entrepreneurs Can Increase Retirement Savings
Some retirement plans allow you to catch up on savings quicker than others. Meanwhile, you may need to put money toward investments initially to reap the rewards later. Here are five helpful ways for you to save for tomorrow.
1. Select Suitable Retirement Accounts and Tax Breaks
Your best option for retirement is to set up the proper savings accounts. As an entrepreneur, there are specific retirement plans you should know about, such as the following:
Also, consider a fixed-rate IRA if you are concerned about market volatility. It offers a guaranteed interest rate if rates drop, so you can better predict the final amount.Tax benefits also help entrepreneurs channel more money toward their retirement, such as tax deductions on home offices. The Internal Revenue Service allows you to deduct certain expenses when you work out of your house, such as insurance, repairs, interest, utilities and work-related purchases.
Additionally, business owners can receive tax breaks on medical, dental and vision health insurance, driving down medical costs. Health insurance is more expensive than ever and those who work for themselves must cover the expenses out of pocket. Whatever tax credits you are eligible for will leave you with money to contribute.
Contact a certified financial planner or advisor for guidance on retirement plans and tax deductions. They can highlight areas to save money, explain confusing tax terms and help you make more significant contributions to your retirement accounts.
2. Spend Less to Save More
Just because you have the money does not mean you should spend your entire paycheck. Even the most successful business owners must monitor their bank accounts. Learning to budget better enables entrepreneurs to put more toward their future. This may mean spending less on necessities and big-ticket items, like new cars and luxury vacations.
One of the most effective budgeting strategies is the 50/30/20 method. You should allocate halfof your income to essentials — rent or home ownership costs, gas, groceries and anything else you need to survive. Then, spend 30% on unnecessary items like entertainment and dining. The remaining 20% is for savings like retirement plans or emergency funds.
One area you may not realize you spend the most money on is subscription services. How many streaming platforms have you subscribed to? It is a good idea to cancel whatever you do not use regularly and see how much money you save. Unused gym memberships, home decor, spa days and accessories are also unnecessary. Once you establish new budgeting habits and begin contributing regularly, you can revisit personal spending.
3. Diversify Revenue Streams
In a volatile economy, having just one revenue stream is risky for your business. It also leaves little room for you to contribute to retirement savings, so you might consider expanding your product line or services depending on your industry. Act fast to jump on new opportunities as different markets open up in your field.
Another way to diversify income is by opening multiple sales channels to reach more consumers. For instance, if you currently own a brick-and-mortar business, create an e-commerce platform and sell your goods and services online. E-commerce has reached all-time highs since the pandemic for its convenience.
Nearly 62% to 90% of immediate decisions derive from seeing specific colors. Consider using red and yellow on your e-commerce website to boost impulsivity and drive sales.
You might also explore freelance work outside your primary field, whether writing and editing, consulting, or selling hand-crafted items. Any side cash can go directly to saving for retirement.
4. Set Up and Emergency Fund
When uncertainties impact your brand, you may find yourself putting your own money toward fixing the problem. However, this — and dipping into your retirement savings early — should always be the last resort.
It is best to keep an emergency fund to cover the most unpredictable moments in your company. You can also create one to cushion personal life situations, like accidents, health issues or auto repairs.
Many say three to six months of living expenses is ideal for covering emergencies — the same goes for enterprises. Entrepreneurs will be relieved to have money set aside when revenue streams slow down.
5. Invest in Real Estate
Real estate is one of the most secure investments you can make in your retirement. For one thing, rents are usually either steady or rising — rarely do they decrease. You can purchase a condo or house, and rent it to a tenant long term or short term. People also tend to hold onto properties until the market is favorable to sell or renovate them for a higher listing price.
Renowned real estate investor Barbara Corcoran has had incredible success using her golden rule — purchasing a property with 20% down and letting the tenants pay off the mortgage. Anything less than 20% is too high of a monthly payment and could be risky. The more you put down, the better your chance of paying it off quickly and earning money on the property.
Save Now to Reap the Rewards of Saving for Retirement
You do not want to have to work forever. Your older years are when you should sit back, relax and relish your time. Work hard now and contribute to your retirement as much as possible.
Eleanor is editor of Designerly Magazine. Eleanor was the creative director and occasional blog writer at a prominent digital marketing agency before becoming her own boss in 2018. She lives in Philadelphia with her husband and dog, Bear.
