Building Wealth While Building Your Business
When you run your own business, no employer matches your retirement contributions. No HR department sends reminders to enroll in the 401(k). No automatic paycheck deductions build your nest egg while you focus on other things. Your retirement security depends entirely on choices you make and systems you create.
For women entrepreneurs, this matters even more. Women live longer on average, earn less over their lifetimes (yes, even as business owners), and spend more years out of the workforce for caregiving. You need more retirement savings than a man in an equivalent situation. Yet entrepreneur retirement planning rarely addresses these realities.
Why Entrepreneurs Neglect Retirement
The reasons are understandable if not forgivable:
Cash is always tight. Every dollar feels needed in the business.
The future feels abstract. Today’s payroll crisis overshadows retirement decades away.
Optimism bias. You believe your business will eventually provide the wealth you need.
Complexity. Without an employer plan, you must research and choose from confusing options.
None of these are good reasons. Building retirement savings while building your business is not just possible; it is essential. Waiting until your business is “successful enough” often means waiting forever.
Retirement Account Options for Self-Employed Entrepreneurs
You have access to retirement vehicles with significant tax advantages. Understanding them lets you choose the right structure.
SEP IRA (Simplified Employee Pension)
Easy to set up and maintain. You can contribute up to 25 percent of net self-employment income, with a maximum of $69,000 in 2024. Contributions are tax-deductible. Good for solo entrepreneurs or those with few employees. Limitation: if you have employees, you must contribute the same percentage of compensation for them as you do for yourself.
Solo 401(k)
Also called an Individual 401(k) or Self-Employed 401(k). Available only to business owners with no employees (except a spouse). Allows both employee contributions (up to $23,000 in 2024, plus $7,500 catch-up if over 50) and employer contributions (up to 25 percent of compensation). Total limit of $69,000 (or $76,500 with catch-up). Offers a Roth option for after-tax contributions. More complex to administer but offers highest contribution limits.
SIMPLE IRA (Savings Incentive Match Plan for Employees)
Designed for small businesses with fewer than 100 employees. Lower contribution limits (employee contributions up to $16,000 in 2024, plus $3,500 catch-up). Employer must either match employee contributions up to 3 percent or make a 2 percent non-elective contribution. Less paperwork than a 401(k) but also less flexibility.
Traditional or Roth IRA
Available to anyone with earned income. Contribution limit of $7,000 in 2024 ($8,000 if over 50). Income limits may restrict deductibility (Traditional) or ability to contribute (Roth). Can be used in addition to employer plans. Often makes sense as a complement to business retirement accounts.
Defined Benefit Plan
Traditional pension plan funded by the employer (you). Allows much larger contributions, potentially over $200,000 annually, based on actuarial calculations. Complex and expensive to administer. May make sense for high-earning entrepreneurs later in their careers who want to accelerate retirement savings.
Choosing the Right Structure
Consider these factors:
Your Income Level and Variability
If income fluctuates significantly, SEP IRA flexibility to vary contributions annually helps. If income is consistently high, Solo 401(k) or defined benefit plans maximize savings.
Whether You Have Employees
Solo 401(k) is only for solo operators or owner plus spouse. SEP IRA and SIMPLE IRA work with employees but require contributions for them too.
Your Age
Older entrepreneurs benefit from catch-up contributions available in 401(k)s and IRAs. Those over 50 with high income may want defined benefit plans to accelerate savings.
Administrative Tolerance
SEP IRAs are simple. Solo 401(k)s require more paperwork. Defined benefit plans need actuaries. Be honest about what you will actually maintain.
How Much Should You Save?
The standard guidance of saving 15 percent of income assumes consistent employment and decades of contributions. Entrepreneurs often start later and have irregular income.
Target saving 20 to 25 percent of your gross income if possible. In years when business is strong, contribute the maximum allowed. In lean years, contribute something, even if small, to maintain the habit.
Calculate your retirement number: the amount you need invested to support your desired lifestyle. A rough rule: multiply your desired annual retirement income by 25. Want $100,000 per year? You need roughly $2.5 million invested. This assumes a 4 percent withdrawal rate, which may be too aggressive for very long retirements.
Work backward from your target to determine annual savings needed. Online calculators can help, but consider consulting a fee-only financial planner for personalized projections.
Tax Strategy: Traditional vs. Roth
Traditional contributions are tax-deductible now but taxed when withdrawn in retirement. Roth contributions are made with after-tax dollars but grow and withdraw tax-free.
General guidance:
- If your tax rate is higher now than you expect in retirement, Traditional makes sense.
- If your tax rate is lower now, Roth may be better.
- If uncertain, split between both for tax diversification.
Entrepreneurs often have lower income in early business years (favoring Roth) and higher income later (favoring Traditional). Adjusting strategy as your situation evolves optimizes lifetime tax benefits.
The Business as Retirement Asset
Many entrepreneurs plan to sell their business as their retirement plan. This can work but carries significant risks:
Valuation uncertainty. Your business may not sell for what you expect. Market conditions, industry trends, and buyer availability all affect price.
Timing risk. You may need to retire for health or personal reasons when business value is low or the market is unfavorable.
Concentration risk. Having all your wealth in one illiquid asset is dangerous. Diversification is a core investment principle.
Identity transition. Many entrepreneurs struggle with post-sale identity and purpose. Planning for this matters too.
A wiser approach: treat the business sale as a bonus, not the foundation. Build diversified retirement savings that provide security regardless of whether or how the business sells.
Investing Your Retirement Savings
Once money is in retirement accounts, it must be invested wisely.
Asset allocation (the mix of stocks, bonds, and other investments) is the primary determinant of returns and risk. General guidance:
- Younger investors can tolerate more risk (higher stock allocation)
- Older investors need more stability (higher bond allocation)
- A common rule: subtract your age from 110 to get your stock percentage
Low-cost index funds outperform most actively managed funds over time. Prioritize funds with expense ratios below 0.20 percent. Vanguard, Fidelity, and Schwab all offer excellent low-cost options.
Diversify broadly. Own US stocks, international stocks, and bonds across different sectors and sizes. Target-date funds offer automatic diversification and rebalancing based on your expected retirement year.
Rebalance periodically. As markets move, your allocation drifts. Annually or when allocations shift more than 5 percent from targets, rebalance back to your plan.
Ignore market noise. Short-term volatility is irrelevant for retirement savings you will not touch for decades. Stay invested through downturns. Those who panic-sell lock in losses and miss recoveries.
Additional Wealth Building Strategies
Beyond retirement accounts:
Health Savings Accounts (HSAs)
If you have a high-deductible health plan, HSAs offer triple tax benefits: contributions are deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. After age 65, withdrawals for any purpose are taxed like Traditional IRA withdrawals. Many people use HSAs as supplemental retirement accounts, paying medical expenses out of pocket today and letting HSA funds grow.
Taxable Investment Accounts
After maxing out tax-advantaged accounts, invest additional savings in regular brokerage accounts. No contribution limits. More flexibility but fewer tax benefits.
Real Estate
Rental properties can generate retirement income and appreciate over time. Requires more active management than stock investing. Can be held personally or within a self-directed IRA (complex).
Business Cash Value
Building cash reserves in your business beyond operating needs creates optionality. This is not retirement savings per se, but accessible capital that can be deployed if needed.
Common Mistakes to Avoid
Waiting until the business is stable. Stability may never arrive. Start saving something now, even if small.
Raiding retirement accounts. Early withdrawals incur taxes and penalties. More importantly, they sacrifice decades of compound growth. Avoid at almost any cost.
Underestimating longevity. Women often live into their 90s. Plan for a 30+ year retirement, not 20.
Ignoring healthcare costs. Medical expenses in retirement, especially before Medicare eligibility at 65, can devastate savings. Plan for this explicitly.
Failing to adjust. Revisit your retirement plan annually. Update projections, rebalance investments, and adjust contributions as income changes.
Taking Action Today
If you do nothing else, take these steps this month:
- Open a SEP IRA or Solo 401(k) if you do not have one. Most brokerages make this free and simple.
- Set up automatic monthly contributions, even if modest. Automation overcomes procrastination.
- Calculate your retirement number and the gap between where you are and where you need to be.
- Schedule a quarterly calendar reminder to review and adjust your plan.
Your future self will thank you. Building wealth while building your business is not a luxury or something to defer until later. It is a fundamental responsibility of entrepreneurship that determines whether your business success translates into lifelong security.
How We Can Help You
Knowledge without support only gets you so far. Here is how we bridge the gap.
The YippityDoo Grant
$1,000 monthly grants for women entrepreneurs. No equity. No repayment. Five-minute application.
Mentorship Programme
Grant recipients get one-year access to YippityDoo’s Wealth Mindset Coaching Group, connecting you with experienced entrepreneurs who have navigated the exact challenges you face.
SheBiz Directory Listing
Get your business in front of customers, partners, and investors actively looking to support women-owned businesses.
