How to Plan for Retirement When You're Self-Employed

If you're self-employed, you're on your own when it comes to planning for retirement. But you can still retire comfortably by implementing smart investment and savings strategies.

Difficulty: Moderately challenging

Instructions

Things You'll Need:

• Financial Calculator
• Brokerage Accounts
• Paper And Pencils

1. Project your retirement expenses and income and determine how much additional income you will need. Take income from pensions and Social Security into consideration, as well as expenses for things such as increased travel and medical care.

2. Budget for your savings. Treat contributions to retirement savings as you would any other weekly or monthly expense.

3. Set up and contribute to a tax-deferred savings plan. You're probably familiar with Individual Retirement Accounts (IRAs), but Simplified Employee Pension plans (SEPs), Keogh Plans and Savings Incentive Match Plans for Employees (SIMPLEs) are specifically designed for the self-employed.

4. Invest in stocks and bonds, particularly if you start planning for retirement early. Decide which combination of potentially volatile, higher growth stocks and more stable, lower growth bonds is best for you.

5. Purchase an annuity. In the simplest terms, an annuity is an investment contract that guarantees you a set income in return for your investment.

6. Consider working after you retire. Start a small business or consult on a part-time basis to keep your mind active and to reduce the amount of money you need to withdraw from your savings.

Tips & Warnings

• Take inflation into consideration when calculating the income you'll need during retirement.
• Although it's not designed specifically for the self-employed, consider an Individual Retirement Account (IRA).
• Contribute the maximum amount to your tax-deferred plans each year. The more tax-deferred savings you amass, the faster your nest egg will grow.
• Evaluate your stock/bond combination as the market and your tolerance for risk change.
• If you're new to investing in the stock market, participate in an investment club before you start investing on your own.
• Reduce your retirement expenses by planning to purchase a smaller home or to retire in a less expensive area of the country.
• The tax-deferred savings plan you choose might require you to set up the same plan for your employees.
• Navigating your financial future can be a bit harrowing on your own. Before leaping into an investment strategy, consult a financial planner or accountant who can explain the tax implications and risks of your retirement plan.