As an entrepreneur or business owner, you should make a priority of building a “freedom account.”
Why call your retirement account and emergency savings a “freedom account”? When you have a big enough retirement account, you have the option to continue working only if you want to. When you don’t have a big enough retirement account, you have no choice except to continue working or to rely only on your Social Security retirement and, possibly, public assistance. You probably won’t be able to wait to take the maximum Social Security benefit. Having an emergency reserve provides assurance you can survive business reverses, reducing your stress.
Too many business owners continue to put personal money into their businesses instead of taking money out of their businesses. They pay their business bills and look to find out if there’s anything left to take out to pay their personal bills. If there is, they often spend whatever they do take out, without providing for their future.
There is no guarantee they will get anything for their businesses when they retire.
Their spending habits are similar to those of other Americans. According to a survey of 4,862 adults between the ages of 18 to 74 during 2018 by the Association of Young Americans and AARP, 47% of all generations have no retirement savings, including 52% for Millennials, 44% for GenXers and 44% for Baby Boomers(!). 53% of all generations said they could only cover expenses for 3 months or less if they lost their income, including 57% of Millennials, 56% of GenXers and 43% of Baby Boomers.
According to a report by CNBC on March 8, 2022, a survey of more than 2,600 adults found 64% of the U.S. population was living paycheck to paycheck. For those earning $100,000 or more, 48% were living paycheck to paycheck.
One of the best things a former business partner of mine did was make annual SEP (Simplified Employee Pension) contributions from our partnership earnings. Later, I set up a 401(k) plan for my business, including the option for employees to make Roth contributions. My daughter, who is my office manager, contributed a substantial sum by payroll deduction plus an additional employer contribution by my business and built up a nice nest egg for her retirement.
With the “magic” of reinvesting earnings, the earlier you start this practice, the bigger account you’ll accumulate.
Most people adjust their spending for the amount of their paychecks. Putting some earnings aside up front on a regular basis can help build the regular habit of building your “retirement freedom fund” while curtailing spending on unnecessary items. By “shrinking” the paycheck, you’ll shrink your spending.
Start building your “Freedom Account” now.
For helpful guidance, get my new book, How To Use Roth & IRA Accounts To Provide A Secure Retirement at Amazon.com or www.siliconvalleypublishing.com. Chapter 4 is “Single-person 401(k) and SEP alternatives for the self-employed.” Consult with a tax professional and a retirement plan consultant for more details.