How to Plan for Retirement When You are Self-Employed

Government employees and many privately employed individuals are entitled to retirement benefits of some kind. However, if you are self-employed, you have to plan for your retirement years yourself to ensure you won't endure financial troubles in your Golden Years. To reap the maximum financial benefits in retirement, it is important to plan during your younger years. There are several ways to invest judiciously for your retirement, even if you are your own boss.

Difficulty: Moderate

Instructions

1. Start young. Do not wait until you reach middle age before you start planning for your retirement. Make a conscious effort to set aside a specific amount every month for your retirement savings. And even if you are middle aged, don't be discouraged. Start planning for your future, today!

2. Think about whether you will have any income to rely on after you retire, and also about your likely expenses. Of course you can't know now exactly what life will be like for you in your later years, but it doesn't hurt to think about it. Ask yourself questions like, "Will I want to travel or purchase a second home once I retire? Will I want to move from my current home, or even city, and live somewhere else?" Keep these important matters in mind while planning. Don't forget to allow for numerous unforeseen expenses, such as medical bills, housing upkeep, inflation and a higher cost of living.

3. Organize your current finances for the future. Methods of accomplishing this goal include recording your investments, expenses and incomes in a particular file that you update as needed. Consider tracking your finances in a spreadsheet on your computer.

4. Calculate your monthly expenses. Try to invest in savings programs that require monthly installments, so there is mandatory savings that does not overburden you.

5. Verify the advantages of Individual Retirement Accounts (IRAs), Simplified Employee Pension Plans (SEP), Keogh Plans and Savings Incentive Match Plans for Employees (SIMPLE), all of which were created specifically for the self-employed. Under the current U.S. tax code, investments in these accounts are tax-free, but because those laws change regularly, consult with a financial advisor or an accountant, just to be sure. Check out which plan(s) allow investment according to your individual criteria in order to reap the maximum benefits.

6. Familiarize yourself with shares, bonds and debenture schemes. Verify the growth potentials, stability, scope of boom and the risk factors. You can actually derive benefits by selling these investments should their value increase in the future, but be mindful there may be tax consequences on such financial gains.

7. Major purchases, such as a house, car and other large ticket items should already have been purchased and paid off as much as possible.

8. Explore the possibilities of rolling over the funds from other schemes to the 401K plan.

9. In retirement, establish a small business, consultancy or part-time activity that will not require you to incur expenses but will provide you with additional income. Another benefit of dabbling in some kind of part-time work in retirement, besides generating some cash flow, is that working helps keep the mind active so you feel useful and happy.

Tips & Warnings

• Hobbies such as writing, collection of articles, clay work, garment design, gardening, painting, singing and even cooking can be converted into money-making ventures after retirement.
• Consult a financial advisor in order to budget and invest wisely for retirement. He or she will be knowledgeable about the variety of retirement-planning options available to someone in your financial condition. They can also warn you about the risks intrinsic in any investment plan.
• Don't invest in stocks to the exclusion of other investments.. Ensure your portfolio is diversified by investing in a variety of financial strategies, such as stocks, bonds, real estate and 401(K) plans.