Self-Employed Americans struggling to save for retirement
If you have decided to make yourself the boss, you are in good company. Recent statistics indicate that 15 million Americans are self-employed. There are many plusses to being your own boss. But, there is the other side too. Large segments of the self-employed are not able to retire.
Collective retirement pot is short by $1.7 trillion
A survey released earlier this month by TD Ameritrade Holding Corporation, shows that approximately 5 million of the self-employed are significantly below what they need in their retirement savings. Collectively, a total of $1.7 trillion is missing from what the self-employed should have for retirement. As many as 70% of survey respondents replied that they do not have a savings plan for retirement, saying that the stresses of staying afloat override such forward thinking activities. 76% of the respondents said that they have accepted the reality of needing to work beyond retirement age.
What is the chief cause? Healthcare. 57% of those surveyed pointed to the rising costs of healthcare as the chief block to their ability to enter retirement, and to save appropriately. 35% said that increasing healthcare costs have hurt their business.
A TD Ameritrade broker said that it is not a matter of the self-employed lacking an understanding about the importance of saving for retirement. The reality is that self-employment income is unpredictable and the focus is more on the needs of today—staying in business, meeting payroll if there are employees, paying for health insurance, marketing the business, and paying the bills. Retirement has become a distant light.
The Federal Reserve Board’s decision to keep interest rates where they are was good news for the self-employed, as 54% reported that a hike would have made the situation even worse. But, there is some expectation now that the Feds will revisit that decision, in light of the latest economic reports showing an improving employment picture.
What can you do?
If you are among the self-employed, here are a few tips from the financial experts to help keep you financially successful and ready for retirement:
1) Business plan: make sure your business plan goes beyond how to market your product or service. Write a realistic statement of your financial condition:
• how much do you have on hand to start the business;
• all expected costs of starting up your business (be generous with the estimates);
• how you will cover the fluctuations in income (put extra income away into savings to cover the down months)
• income statement (that is reviewed at least quarterly)
2) Avoid using your credit card for your business start-up expenses. If you need cash to get going, apply for a small business loan instead.
3) Be meticulous with your financial records. Make sure you are billing on time, paying bills and employees on time, meeting your tax obligations and tracking all charges and business-related expenses.
4) Take advantage, as early as possible, of retirement savings plans for the self-employed, such as: SEP-IRA, Solo 401(k), if you are the sole employee of your company, or a simple IRA if your employee base is small. A self-employed 401(k) plan, for instance, allows you to make higher annual contributions, gives you a broader menu of investment options, and if you must, you can borrow from your plan, up to 50%, at a low interest rate.
5) Unexpected healthcare costs: rather than deplete your savings, or using a credit card, turn to a marketplace lending platform for a medical loan. P2P lenders have very good options for medical loans to cover those unexpected or uncovered medical expenses.