Most women are caregivers. We often put others’ needs—whether our parents, our spouse, or our children—before our own. We all have heard the advice that we cannot help others without taking care of our individual needs first, which is also true for our finances.
Women take on many roles throughout their lives – daughters, wives, mothers, and, increasingly, businesswomen. The Small Business Administration reports that 50% of all small businesses in the US are home-based, which equates to approximately 15 million. The Census Bureau estimates that women run nearly three-quarters of home-based businesses.
Running your own business offers independence and flexibility. These appealing attributes are sometimes the primary reason why women start businesses, especially those who are mothers. At the same time, women business owners need to be even more diligent and disciplined about planning for retirement.
Saving enough for retirement is the biggest concern for many of us. For some people, retirement is a long way off. For others, it is right around the corner. Whatever your timing, there are many unknowns—where and how long you will live, how much money you will need for day-to-day expenses, and your health. Many people find the retirement planning process intimidating. However, it is crucial to start thinking about the unknowns and variables now, regardless of your age.
As we are living longer, we need to plan for a longer retirement. According to the Social Security Administration, more than one in three 65-year-old people can expect to live past 90, and more than one in seven will live to 95. Women tend to outlive men and have longer retirements. According to the US Census Bureau, a 65-year-old woman today can expect to live another 21 years, compared to 18 years for a 65-year-old male.
Just like when you create projections for your business, make projections for your retirement. There are several calculators and tools online that you can consult. Here are a few thoughts:
- Compare a few guidelines and tools—you will likely get different answers. For each tool, also try different variables and scenarios.
- Think about building a retirement fund that is equal to a multiple of your earnings. It is easy to benchmark progress when you use a multiple. Experts suggest striving for a multiple from eight to fifteen times or more of your earnings. If you plan to retire before age 65 or have a high income and a high standard of living, aim for the upper end of the range.
- Chart your progress over time. Using a multiple can help you determine whether or not you are on track. Compare your current retirement savings balance to your current earnings to assess your progress, which will help you decide whether you need to increase your savings.
If you own your own business, one easy way to save for retirement is a Simplified Employee Pension or SEP. According to the IRS, you can contribute as much as 25% of your net earnings or up to $57,000 for the 2020 tax year. This contribution reduces your taxable income and builds your retirement nest egg. Ask your accountant if this is right for you. You can also visit IRS.gov to learn more.
Whether an entrepreneur or not, it is important that you never borrow from your retirement account. Some women may be tempted to borrow to help support a growing business or help children with college tuition. If you do so for any reason, you will miss the growth opportunity for that money. Paying yourself back could take longer than expected. Borrowing from your retirement account also means that the calculations that you made previously are no longer valid.
Women who are mothers and entrepreneurs have a lot to juggle. Being thoughtful and organized in planning for your retirement helps reduce stress and allows you to focus on your business and, more importantly, on your family.
