Retirement and Transition Plans

Retirement plan options for small business owners and freelancers

How can you plan for retirement when you're self-employed?

Published: April 24, 2017
Updated: January 30, 2019

Having a solid plan in place is vital to ensuring you can retire, but a 2017 survey by Manta suggests more than one-third of small business owners do not have a retirement savings plan.1

"Many business owners put everything they have back into the business," says Brian McFadzen, first vice president at Wells Fargo Advisors. "Of course you want your business to be successful, but you've got to take a step back and make sure that you're including yourself in the equation."

While individuals who work for large employers are often set up with a predetermined retirement plan, small business owners have to select and manage their own plans.

The right plan for you will depend on several factors, such as the number of individuals you employ and the consistency of your business's cash flow. McFadzen also recommends that small business owners think about the reasons they're implementing the retirement plan, whether it's to prepare for their own future, to attract and retain employees and maintain a competitive edge, or both.

Continuing to reevaluate your retirement plan as your business evolves and your personal plans change can keep you on the right track in pursuit of your financial goals.

You may ask yourself:

  • Do I have a target date for my retirement? A concrete timeline is integral to every manageable goal. A large portion of your calculations and decisions will depend on the timeframe you have to work with, so establishing a target retirement date is a crucial first step to your retirement strategy.

  • What are my goals for retirement? Think about how you plan to live in retirement. For instance, do you intend to sell your current business but continue working elsewhere, or retire completely? Do you plan to maintain your current lifestyle, or perhaps downsize to a smaller home?

  • Which retirement plans am I eligible for? Individual 401(k)s are designed for companies which employ only owners and their spouses, while businesses with a few employees may benefit from a Simplified Employee Pension Plan (SEP-IRA), and businesses with up to 100 employees may consider a Savings Incentive Match Plan for Employees (SIMPLE IRA). Explore the ins and outs of each plan.

  • Have I identified a transition strategy? If your business operations are large enough, finding a buyer whom you feel comfortable with to take over your business can be a lengthy process. Once that step is taken care of, the process of transferring ownership can be both complicated and emotional. Begin preparing your transition strategy in advance — as early as the initial business planning stage.

  • Am I taking care of my employees? More of a consideration for small business owners than freelancers, employee contributions are a key factor in determining the right retirement plan for you. For instance, a SEP-IRA requires that an employer contribute the same percentage of pay for each employee, while under a SIMPLE IRA, employers match what each employee decides to contribute. Consider how you can provide for your employees and the position you will leave them in when you depart the business.

Learn more about cultivating your retirement plan.

1 "One-Third of Small Business Owners Don’t Have Retirement Savings Plan." Manta. July 11, 2017.