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It’s important to save for retirement. Read on for ways to prioritize your savings as a small business owner.
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Owning a small business isn’t an easy thing, and there can be lots of pressure to have a handle on every single aspect of your venture, from inventory to payroll to accounts payable and receivable. But while you may be dedicated to your company’s success, you might get so caught up in it that you let your own long-term financial security fall by the wayside.
A recent study by Lincoln Financial Group found that 65% of small business owners are worried about not having adequate income during retirement. If you share that concern, here are a couple of important things to do.
1. Make sure to pay yourself a reasonable wage
The more of a salary you take as a small business owner, the less money you have to reinvest in the business itself. But if you don’t take an adequate cut of the profits, you might struggle to meet your own savings goals.
So comb through your banking records and see what salary you can afford to pay yourself based on how your company is doing. And remember, think about your own need for a raise the same way you would if an employee were to ask for one. Just as you might try your hardest to say yes in that situation, know that it’s okay to say yes to yourself.
2. Explore your retirement savings plans options
If you own a small business, sponsoring a 401(k) plan may not be so cost-effective. But there are certain plans you can explore that are designed specifically for small business owners.
One option is a SEP IRA, or Simplified Employee Pension. It’s a tax-advantaged savings plan that has you contributing funds to your own savings as well as your employees’ retirement accounts (you have to contribute the same amount of money, percentage-wise, for all employees so if you’re putting in 10% of your salary, you put in 10% of your workers’ salary to their accounts). The maximum you can contribute this year is $66,000, but contributions go in tax-free, yielding you some savings.
Another option you can look at is a SIMPLE IRA, or Savings Incentive Match Plan for Employees. You can either contribute a flat 2% of employee salaries, or match contributions of up to 3% of your employees’ salaries. The maximum amount you can contribute is $15,500 if you’re under 50, or $19,000 if you’re 50 or older. And like SEP IRAs, your contributions here are tax-free as well.
Don’t sell your retirement short
Running a business takes a lot of work. And after years of that, the last thing you deserve is to struggle financially during retirement. So as hesitant as you may be to take a higher salary than what you’re currently paying yourself, doing so could spell the difference between being able to save for your future or not.
At the same time, explore your savings plans options to see which ones make the most sense for you and your business. Chances are, it’s not just you who’s worried about having enough income in retirement. Your employees might share that very concern. So if you’re able to offer a retirement savings plan that benefits everyone, that could be a good way to retain key employees for many years and help ensure that your business has continued success.
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