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Working for yourself? Don't forget retirement

Mary Lacey Gibson, a financial planner and small-business coach for the Garrett Planning Network based in San Juan Batista, Calif., recalls a young man who came to her for guidance. At the age of 24, he was making $90,000 a month from a few websites he had created. "He had a motorcycle and a backpack and wanted to just travel from place to place until he was 30," she said. But he also wanted to save for retirement. "So we set him up with a relatively simple plan and let it go. He was very bright."

Gibson's young client was indeed smart to prepare for the future—but it helped that he had plenty of cash to put aside. Diverting money to a retirement plan isn't always so easy to do if you work for yourself, unlike traditional wage earners whose contributions are automatically deducted from the paycheck. "For most of us who are working stiffs, the plan is handed to us," said Ric Edelman, chairman and CEO of Edelman Financial. But those who are their own employer? "They tend not to create a retirement plan in the first place."

A recent TD Ameritrade survey found that 40 percent of self-employed individuals weren't saving regularly for retirement, and 28 percent weren't saving at all. That's compared to 12 and 10 percent, respectively, of the traditionally employed.

A survey by American Express of small-business owners last year came up with similarly dispiriting results: 60 percent of respondents said they were not saving enough for their so-called golden years.

It's an alarming situation, given the expanding ranks of the self-employed. From 2001 to 2012, self-employment in the U.S. grew by 14.4 percent to a total of 10.6 million jobs and 7.1 percent of the total workforce, according to an Economic Modeling Specialists International report. (It excluded entrepreneurs who'd incorporated their businesses.)

(Read more: Planning for your retirement: Making your money last)

"A recent survey found that 40 percent of self-employed individuals weren't saving regularly for retirement, and 28 percent weren't saving at all." -TD Ameritrade

Invest for retirement even when money's tight

Many individuals going it alone feel they can't spare the funds to squirrel away for retirement, and small-business owners with extra cash tend to reinvest it in the business. "It's really not prudent to plow most available resources right back into the company," said Alice Bredin, small-business advisor to American Express OPEN, the company's small-business card and services unit. Funding your own retirement account is especially crucial when you don't have a company pension or 401(k) matches to rely on. And if you forgo contributions, you forgo tax-free compounding.

One problem? TD Ameritrade's study found "a lack of knowledge about what's available" to the self-employed, said Lule Demmissie, the firm's managing director of retirement. In fact, people who work for themselves have more options than wage earners, and some plans allow much higher contributions than employee-sponsored 401(k)s or individual IRAs.

Among the three most popular plans, the Simplified Employee Pension (SEP) IRA is one that lets you set aside as much as 25 percent of your compensation up to $52,000 in 2014 (no catch-up contributions for over-50s allowed). But it gets expensive if you hire employees, because you have to contribute the same percentage to your employees that you defer for yourself, so it's best for individuals and sole proprietors.

A Savings Incentive Match Plan (SIMPLE) IRA will allow you to keep investing in the same plan if you hire employees—you will have to match their contributions up to 3 percent of pay—but the contribution limits are much lower ($12,000 this year, plus a catch-up amount of $2,500 if you're 50 or over).

A one-participant 401(k)—also known as a solo or individual 401(k)—lets you make contributions as both an employee and employer. As an employee, you can defer up to $17,500 (or $23,000 with a catch-up), and as the boss, you can defer up to 25 percent of your income. The total of both can't exceed $52,000, plus $5,500 if you're catching up. As a bonus, your spouse can contribute the same amount. But if you hire employees, you'll either have to go through the costly process of converting it to a more complex employer version or stop funding it altogether.

Choosing the right one depends on how much you can afford to save, the paperwork and expense you can manage and whether you have or plan to hire employees, among many other factors. It makes sense to consult a financial advisor, a planner or an accountant to help navigate the complexities.

(Read more: Retirement planning: Biggest mistakes by men and women)

Automate savings and take the long view

Once a plan is established, the single most important thing to do is institute a system that will ensure regular contributions, even if they're small, said Nathan Irons, founder of Bluestone, a wealth-management firm in Bethesda, Md., that caters exclusively to entrepreneurs. "Over 20 years, I've consistently found that making it automatic just tends to work, especially if you start early."

Avoid the temptation to make withdrawals when cash gets tight, as it often does when you're on your own. Edelman even warns against taking loans from an individual 401(k), because that, too, will undermine the growth of your nest egg. "We try to make sure our clients are minimizing that possibility by maximizing their cash flow and reserves outside the plan," he said.

When it comes to allocating investments within the retirement plan, advisors recommend the same basic strategies whether you're salaried or self-employed: Be guided by your risk tolerance, think long-term, diversify and minimize fees. Above all, said Irons, "Don't chase bright, shiny objects."

Gibson says she likes to put her clients in index funds, mixing in managed no-load funds and ETFs that "have some history," and she favors some foreign exposure. At the moment, she said, "I'm tending to do overweighting on short-term rather than long-term bonds."

(Read more: How a one-person business can break $1 million)

One caveat: If you have a lot of money committed to an industry through your work—say, tech, for example—make sure your portfolio isn't too heavily invested in it; if you overconcentrate your assets, you'll increase your risk. Gibson also said that people who own both a home and a building for their work should go light on real estate.

That 24-year-old who set up a plan, put it out of his mind and set out to see the world was on the right track. But most self-employed people—whether they make cupcakes in their kitchen, consult on engineering projects or run Web-development companies—will need to stay on top of their retirement planning as the business grows.

"Do it now," said Bredin. "But understand it's not something you're going to do and then it's done. Commit to a time of year for review, and be sure you're making any changes you need to stay on course."

Being the boss of yourself means taking care of yourself, too.

By Robin Micheli, Special to CNBC.com

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