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How To Save For Retirement When You’re Self-Employed

Have you ever heard the story about Bansir, the ancient Babylonian chariot builder?

Bansir worked hard – really, really hard. No matter what Bansir did, though, he found that at the end of every year, he had almost no leftover money. His buddy, Arkad – an equally hard worker – found himself with bountiful riches, year after year.

Bansir had to know Arkad’s secret.

Arkad told Bansir very simply: I pay myself first – one fraction of all my earnings is for me to keep. The rest goes to things you need, like food, lodging, insurance, etc.

Once Bansir took Arkad’s advice, he became the richest man in Babylon. And so can you.

As small business owners, saving money can be especially tricky. Time and money are both very limited, yes, but despite that, setting up a retirement plan is something that you should do right now (to the 70% of self-employed folks who aren’t saving, I’m talking to you!) Having a somewhat inconsistent income often makes it easy to decide to skip saving altogether, but you should stop and ask yourself in those moments: do I really want to be working later in life when I would rather be resting or travelling, or whatever?

No, you don’t.

I shared the story of the Richest Man in Babylon to provide some context for the golden rule of thumb regarding retirement planning: the 10% rule – the idea that you should consistently be saving 10% of your income in order to secure a comfortable retirement nest egg. Executing the 10% rule is easier than you might think, and once you get into the habit, you won’t even notice anymore (and your 65 year old self will thank you!) A good way to start getting into this habit is by setting up an auto-transfer every month from your checking account over to a savings account. This way, you won’t even have the choice to talk yourself out of it.

Another good way to implement the 10% rule (and more) is to find yourself a finance accountability partner, or someone to whom you report your financial progress. This isn’t somebody you have to hire; it could simply be a friend or a spouse or business associate even. Talk to them about your financial goals, and request that they check in with you each month to see what steps you’ve made toward your goals. It really helps to have a third party to be accountable to! (This works even better if you serve as their finance accountability partner as well, so as to create some friendly competition.)

Once you get the 10% rule nailed down through whatever means necessary, you can then start to figure out which specific retirement plan is right for you. No matter which one you choose, the 10% rule is absolutely essential.

Let me walk you through the some of the more popular self-employment retirement plans:

401(k) plan: Make annual salary deferrals up to $18,000 (in 2015 – 2017), plus an additional $6,000 if you’re 50 or older (in 2015 – 2017) either on a pre-tax basis or as designated Roth contributions. (

Solo 401k: This plan is designed for self-employed people who have no employees. “This 401(k) plan functions exactly like a 401(k) plan you would receive if you were covered under an employer’s with a key exception: If you were covered by an employer, you would make contributions as a pre-tax payroll deduction from your paycheck and your employer would have the option of matching those contributions up to certain amounts. With a One-Participant 401(k) plan, you have the advantage of being the employee and the employer. This allows you to contribute more than you could if you were under an employer’s plan.” (Investopedia.)

Simple IRA: “Just as the name says, the SIMPLE IRA is designed to be an easy, hassle-free way to save for retirement. The plan follows the same investment, rollover and distribution rules as a traditional IRA except for the contribution limits.” (Invetopedia.)

Simplified Employee Pension (SEP): “Contribute as much as 25% of your net earnings from self-employment (not including contributions for yourself), up to $54,000 (for 2017; $53,000 for 2015 and 2016).” (

With any of these options, the most important thing to remember is the advice that Arkad gave to Bansir: pay yourself first. If you make sure that at least 10% of your earnings are for you to keep, you will surely become the richest person in Babylon.

Steve Strauss

Steve Strauss is the senior small business columnist at USA TODAY, the Editor-in-Chief here at Small Business Connection, a speaker and spokesperson. He can be reached at

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