For six years, Matt Stadelman and his co-founders had pushed retirement savings to the bottom of their to-do list, as they plowed any spare cash into growing their St. Paul, Minnesota-based business, Jet Construction & Remodeling. "I was so focused on the present," he recalls. "When we finally put together a retirement plan for our staff, the light bulb went off: We should be taking care of ourselves, too."
On some level, Stadelman thought he had been saving for retirement--by building up a business he hoped to one day sell. But when that time came, in 2007, the sale price was far lower than he'd hoped--or planned--for. And Stadelman, who now advises other entrepreneurs as a partner at Navalign Wealth Partners in Los Angeles, warns that he sees many others repeating his mistake: More than a third of business owners have no retirement savings plan in place, according to a 2017 Manta survey of about 2,000 entrepreneurs. Nearly one in five of those surveyed are banking on funding their retirement by selling their business--which isn't always a safe bet.
"I think, as entrepreneurs, we're so optimistic that things are going to work out, if we just work our asses off," says Emily Lonigro, founder of the Chicago-based design studio LimeRed. "But at some point, it was like: I have to save."
1. Reap immediate benefits.
People struggle to save for some point in the far-off future because we have a natural tendency to prioritize the here and now. But there can be short-term benefits to socking away retirement savings this year: "If you're investing in a pretax retirement plan and you're in the 30 percent tax bracket, every dollar you put in is like investing $1.30," because those savings lower your immediate taxable income, says Steve Beninati, a vice president at RBC Wealth Management in New York City.
"Establishing a retirement plan also creates your own small bank," he says. With an IRA, for instance, you can borrow against your own savings--without penalty--as long as the funds are returned within 60 days. With a 401(k), you can often take a longer self-loan (to cover anything from payroll to buying a car) and make repayments with interest. Beninati also points out that lenders look favorably on potential borrowers with retirement savings, "because they like to see other assets beyond what's in the business checking account," he says. That's true whether you're trying to refinance your home or applying for more business funding.
2. Treat it like Netflix.
As soon as he made one purchase for his business, Rai-mon Barnes started thinking about the next. "For years, I was stuck in this perpetual motion, chasing whatever was going to take my business to the next level," says the founder of CodeSwitch Marketing. "Retirement savings was not even a thought." But when an old friend chided him for not having savings (despite having a family), Barnes decided to get serious. "It was so daunting to look at an empty account. The only way I could act was to start really small," he says. So he did, at first putting away $50 a month.
Automating such payments can mean the difference between empty intentions and a fat portfolio, says Stadelman. "Most people wouldn't consider skipping the bill for Netflix or their cellphone," he says. "You have to find a way to make saving as mindless as paying those bills."
Automatic monthly contributions to his savings plan also helped Barnes better handle his cash flow. Most of his revenue, he says, comes in lump sums from project-based work, "and if you're not catching up on bills when that check comes in, you're trying to save for the next bill or the next thing your business needs to scale." Adding to his savings as if he were just paying another utility bill meant he didn't have to rely on willpower (or debate reinvestment versus retirement) every time one of those big payments came in.
3. Call in a pro.
Does it make more sense to open an IRA or a SEP-IRA? If you start a company 401(k), do you have to include all employees in the plan--and offer the same match? If your business has an accountant, she should be able to guide you to a plan that maximizes your tax benefits while staying on Uncle Sam's good side. If there isn't an accountant, says Barnes, enlist a financial adviser to help you look at how your savings might affect not just your business this year, but your entire financial picture. Barnes eventually upped his monthly contributions to $800 after meeting with a planner who showed him how his midlife start would impact his projections.
Beninati also steers clients away from what he says is a common trap for entrepreneurs: investing too heavily in the sector and companies they're most familiar with. "If you own a tech business, you're more likely to invest in tech," he says. "But there's no better piece of advice than to diversify."