Entrepreneurs and the self-employed must save for retirement
Sunday, February 27, 2022
I recently interviewed an entrepreneur who has a small business. When asked about his earnings he responded that he doesn’t have a salary and all the earnings are used to pay personal bills. Therefore, there was no saving and little or no money to reinvest in the business.
He plans to expand the business, but would have to source capital. In regards to retirement planning, he is dependent on the business to provide retirement income, and to compound the issue, he is a pre-retiree. His retirement, however, is likely to be delayed as the business needs time to grow and be profitable. It is also unfortunate that a pension plan is not in place for retirement.
There are many self-employed business owners who don’t have a formal pension plan as they believe the business will provide the pension income. It’s a myopic view. Some entrepreneurs expect to sell their business to secure income, and there are others who don’t plan to retire as they see the business as the only source of income.
Retirement planning for the self-employed is necessary in order to ensure financial security in the future when the working years have passed. As a business owner, it is best to plan for retirement early and make regular contributions to a formal retirement plan. Making maximum contributions consistently should be desired as it can provide the opportunity of retiring early or to create a retirement nest egg that will offer the same standard of living in retirement as enjoyed during the working years. Who knows how many years you will spend in retirement? Will you have enough resources to cover health-care costs and other expenses? Will you run out of money in retirement? Your money should outlive you, but this requires strategic planning way before the retirement years come. Retirement planning doesn’t stop when work stops. Prudence is required in managing resources, especially in the first few years of retirement.
A 2019 report by German company, Statistica, revealed that near 39.5 per cent of the working population in Jamaica are self-employed or obtain their earnings strictly from goods and services that they produce. It is important to note that Jamaica recorded the highest rate of self-employment in Latin America and the Caribbean. This means a significant part of the working population is solely responsible for their retirement. Being your own boss means that you are in control of your financial destiny. It’s important to make retirement planning a priority. Starting early with small contributions to a retirement plan and increasing contributions to the allowable maximum as your business grows, will set the stage for peace of mind and financial freedom when the retirement years draw nearer.
We know it is not easy to own a business and save for retirement, but vision and discipline are paramount if one is to maintain a retirement plan. Keep your retirement goal in mind. Design your retirement plan, and set measurable and realistic goals. This is is indeed hard for some self-employed individuals and entrepreneurs to save for retirement, and the reason varies. For some, their businesses or ventures are not making sufficient profit to save for retirement. Then there are others who re-invested all their life’s savings in the businesses. Still there are others who plan to sell their businesses to provide a single source of income in retirement. Others either don’t see the need to save for retirement and then there remain those who have no plans to retire.
Some self-employed and entrepreneurs fail to take advantage of the tax benefits of having a pension plan. The remitting of funds to a formal pension plan ensures tax benefits for the contributor. The pension contributions and returns are invested tax free and provide a tax deferred pension upon retirement. Automated pension contributions are recommended. Salary deductions is a good method. There are also flexible payment options. Pension contributions may be made monthly, quarterly and semi-annually, annually and compound interest can create a substantial retirement nest egg. Entrepreneurs should also encourage their employees to plan for retirement and assist in making deductions. Afterall employees are your human resource. Their well-being is important for the growth of your organisation.
Finally, make sure your pension funds are beating inflation. Recently on a radio programme, managing director of BPM Financial Limited, Peta Rose-Hall lamented that saving for retirement is “a national crisis” and bemoans the low number of employed individuals who contribute to a pension plan in Jamaica. Don’t be left behind. Secure your retirement income today.
Grace G McLean is Financial Advisor at BPM Financial Limited. Contact her gmclean@bpmfinancial. and visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. Email her at firstname.lastname@example.org
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