Business owner retirement plan that is budget-friendly can secure your financial future as an entrepreneur. Micro pensions, saving strategies, and more.
You’re hustling so hard, running that thriving fashion store in Lagos, or maybe it’s a tech startup or a consultancy service in Abuja. Your business is your baby, you’ve been giving it attention and pursuing daily growth, but you overlooked something important! An essential aspect of your financial freedom- Business Owner Retirement Plan!
As an entrepreneur, your vision should go beyond the here and now (immediate profits) to your future(Retirement). If you are not a traditional employee, that means there is no employer to pay your pension. Your retirement plan is your responsibility. Have no fear; there are affordable retirement options you can work with.
Why Plan for Retirement as A Business Owner?
Many entrepreneurs ignore planning for retirement because their business is their primary and only asset. They assume and bank on the continued sales and operation of their current business. As a result of this erroneous thinking, retirement plans take a back burner, with business needs taking all the attention. That’s risky because life and business are unpredictable, plan ahead!
A lot of self-employed individuals rely on informal solutions like the “Susu Clubs” in Ghana or the “Ajo” savings method predominant in Lagos and other western states in Nigeria. While that serves as a temporary saving option, it lacks the growth potential and tax advantages of a formal retirement account.
Failing to have a retirement plan is risky. Life is unpredictable with changes in market valuation, old age or ill health. Without a contingency plan, you have no safety net.
This is why you need a solid retirement plan. According to Warren Buffet, the shade we sit under today was planted a long time ago. The earlier you plan, the better for you. Start now, delay is dangerous. You will reap the rewards at retirement.
Benefits of having a Successful Business Owner Retirement Plan
Think compounding interest, that’s your best bet for planning your retirement. Even a little amount set aside consistently for a long period can grow into something tangible. Let’s use this example, assume you are a 27-year-old entrepreneur saving 20,000 monthly consistently until age 40. That’s 13 years of saving.
Without interest, just to keep it simple (in reality, interest will increase the amount), your total savings will be 3,120,000. This is how time and money work together to set you up for a nice retirement. Start small; join simplVest’s monthly 2k group; delay is dangerous. Start early; it increases your chances of saving more. When you do, you avoid last-minute efforts, stress, and vulnerability.
Retirement plans Demystified: Business owners Retirement Plans Options
There are numerous tax-advantaged retirement options offered by governments worldwide. Follow along as we help you understand options that are specific to Nigeria.
In Nigeria, the Contributory Pension Scheme offers formal pensions that cover the informal sector (the self-employed). A pension is an income that an individual receives when they stop working. This fund is for individuals who have reached a certain age (retirement age) when they stop working or have specific health challenges.
Some pension options in Nigeria include:
1. Pension Plan Micro(MPP)
This retirement plan is ideal for self-employed entrepreneurs, artisans, traders, even business owners with less than three employees. If you are under this bracket, you can open a Micro Pension account and make monthly contributions. It’s flexible; you can contribute any desired amount, and no tax is deducted from it. With CrusaderSterling Pensions, you can withdraw 40% of your contribution in cases of emergency, even before your Retirement.
2. Voluntary Contributions (VCS) to Retirement Savings Account (RSA).
Another name for voluntary contribution is Additional Voluntary Contributions (AVC). This plan is for individuals who have worked in the formal sector before but are currently self-employed. If you are an employee working in a formal setting.
You can increase your pension savings beyond the mandatory 18% limit, which is paid into your retirement savings account. The extra contributions you make are free of tax. This plan allows you to save more, any amount of your choice, and they accumulate interest growing over time.
3. Investments.
Many entrepreneurs invest to future-proof their Retirement, and you can do the same. It’s not the same as formal pension plans, but it has its merits, especially for the long term.
Some of these investments include:
- Real Estate is popular among Nigerians and entrepreneurs worldwide. If you can afford it, investing in real Estate (properties, land) is a recommended long-term investment. Just think about the potential for collecting rental income and the appreciation of your land with time.
- Mutual funds and Equities: You can put your money in approved mutual funds or investments managed by a fund manager (broker) and invest it in stocks and bonds, growing your wealth with time.
- Fixed Deposits and Treasury Bills: A fixed deposit, you can set aside a specific amount monthly, this money goes into your deposit a fixed amount over a period of time. Nigerian banks offer fixed account options. Decide on an amount and possibly automate your transfers monthly.
You can’t withdraw your funds until the end of the stipulated time. Treasury Bills, on the other hand, are sold by the government at a discount and can be traded upon maturity for higher prices.
Tips for budget-friendly Saving
- Don’t wait until you get a lump sum. You can gradually increase the amount as your business grows.
- To avoid the temptation of dipping into your retirement plan, seal off any access to it.
- Leverage formal retirement plans to enjoy tax benefits.
- Use different investment options for your retirement plan; this reduces risks and increases your earnings from returns.
- Seek professional advice; follow SimplVest for more financial tips.
Conclusion
Having a retirement plan as a business owner, an entrepreneur, or self-employed is important. It makes you enjoy your post-work life and ensures your business is in safe hands. Are you prepared for retirement? Be that entrepreneur who smiles during retirement.
Start planning with this current understanding of retirement options, from Micro Pension plans to investments. Begin today, be consistent, and automate your savings. Your retirement is in your hands. Subscribe to the SimplVest newsletter for more financial insight to guide you .
