How to Build a Retirement Plan When Self-Employed

iQuanti: It's easy to shift retirement planning to the back burner when you're self-employed. Facing inconsistent income or building your business by reinvesting means less money is available to put toward long-term savings goals. The good news is you can still build a retirement plan when you're self-employed, and it doesn't need to be complicated. Here are five ways to get started: 

Have a Goal in Mind 

If you haven't thought about it yet, now is the perfect time to estimate how much you'll need to retire. This typically comes down to the lifestyle you want in retirement and how much you think you'll be spending on a monthly or annual basis. For example, if you plan to spend $50,000 per year when you retire, you'll need a nest egg of $1.25 million (if we assume a standard 4% withdrawal rate).

Once you have that number in mind, you can assess your existing investment accounts. Then, look to self-employed retirement accounts to beef up savings and start chipping away at your goal. 

Choose the Right Investment Accounts 

Depending on your self-employed situation, i.e., if you're working alone or have employees, you'll be eligible for various types of retirement accounts. Consider all the accounts available to you to choose the best options, including: 

  • Individual 401(k) 
  • SEP IRA 
  • Roth IRA 
  • Taxable brokerage accounts 

After you decide which accounts to use, be sure to create a diversified asset distribution. That means looking at various options, including stocks, ETFs, mutual funds, and bonds. It also pays to look at alternative investment options like real estate to round out your portfolio. 

Get Life Insurance in Place 

Choosing the right life insurance policy, like whole or term life insurance, can provide financial protection for loved ones and peace of mind for you. It goes without saying that the retirement plan changes dramatically if your income goes away. So, it's critical to protect your retirement and legacy by making sure loved ones are financially cared for. 

This is especially important if you've taken out a small business loan with a partner as part of your self-employment. In that case, a co-signer can use term life insurance to cover the remaining loan balance if you pass away before it's paid. 

Update and Re-Assess Your Plan Regularly 

Self-employed individuals understand how quickly their financial situation can change. Many people will experience dips and rises in income as time goes on. And that means setting a recurring date, quarterly or annually, to reassess and update your retirement plan is wise. 

You may find that in certain seasons you can increase contributions significantly. But during the slower times, you may need to pull back on retirement account contributions to meet monthly bills. 

Seek Professional Help 

Sometimes, the right move for a self-employed person is to seek out a financial advisor who has experience assisting others in the same situation. Financial professionals can check your blind spots and help create a long-term retirement plan to ensure you'll meet your goal on or ahead of schedule. 

The Bottom Line 

Retirement planning when you're self-employed isn't easy. In fact, it comes with a lot more moving pieces than someone with a predictable monthly income. But starting to plan early means you'll have a greater chance of retiring on your terms without having to work for the rest of your life.

Source: iQuanti, Inc.