8 Tips on Retirement Planning for Home Business Owners

How to Plan and Save for Retirement

••• Retire from your home business in style. Tom Merton | Getty Images

Running your own home based business can be fun and fulfilling, but at some point, you’ll want to retire to enjoy the fruits of your labor. While you should be paying social security when you file your taxes, you don’t want to rely on it alone to cover your expenses when you retire. Especially if you’re currently under 40. According to NOLO,  the next twenty to twenty-five years will likely see big changes in social security that can mean a 25% reduction in benefits.

 As a home business owner, you don’t have an employer helping you sock away money for your retirement, so. It’s up to you plan and save for your retirement. Here are a few tips on how to do that:

1) Decide the lifestyle you want during and how much that will cost.

Do you want to pay off your home or sell it and buy an RV to travel the country? How much do you want to earn each month, taking into consideration inflation and cost increases? How much you need in retirement depends on how and where you plan to live.

2) What age do you want to retire?

The sooner you stop working, the more money you’ll need in retirement. Can you accumulate the amount you need in the time frame to meet your retirement age goal?

3) What is your life expectancy?

Of course, this is a difficult question to answer as no one knows when or how they’ll die. While life expectancy has been increasing due to advances in medicine, life style choices can impact your longevity.

Smoking, unhealthy eating, sedentary life, and other factors can reduce your life expectancy. The CDC reports the average life expectancy is 78.8 years. The longer you live, the more you’ll need in retirement.

4) Factor in increased medical costs.

The older you get, the more likely you’ll need medical treatment.

Even people with healthy lifestyles can develop medical issues as they age. 

5) What are your plans for assisted living?

The older you get, the more likely you’ll need help and possibility regular medical support, which is expensive.You'll want to anticipate these costs as you plan your retirement financial goals.

These are just a few of the financial considerations you need to make as you plan for retirement. Many financial planning and investment businesses offer retirement calculators that can help. 

Once you have a ball-park idea of the amount of money you need to afford your retirement goals, you need to start saving. Here’s how:

6) Take stock of your current financial situation.

What are your current assets (i.e. your home) and liabilities (i.e. mortgage).  The Social Security Administration sends statements to people ages 25, 30, 35, 40, 45, 50, 55, and 60 and over who aren’t receiving benefits. Or you can request a Social Security statement online, which will tell you how much you’ll receive in payments at various ages of retirement. Other financial assets to consider include stocks, bonds, 401ks and any other money or investment accounts.

7) Determine the value of these assets at the time of retirement.

This will be a guestimate because it’s difficult to predict economic growth.

There are some generic estimates you can use. For example, the average home appreciation in the U.S. is about 3-5% according to Zillow. Of course, much depends on the area you live and the current economic state. Your financial planner or investment sources should be able to give you an estimated growth of your assets.

8) Do you need to save more?

Based on your current financial situation, your current financial planning activities, and best guess at future retirement income, do you have enough? If you do, good for you. If not, it’s time to save more. Here are a few tips to boost retirement savings:

  • Keep on top of your personal and business finances.
  • Pay off debt and invest the money once used for debt into your retirement.
  • Don’t touch your retirement accounts until you’re ready to retire.
  • If you have a spouse that works a traditional job, learn about the company’s retirement and pension options and maximize what it offers.