How to Plan for Retirement When You’re Self-Employed

Millions of people in the UK now work as self-employed individuals, running their own businesses and enjoying the fulfillment that comes from working for yourself. But if you’re one such individual and are approaching retirement, or you want to get ahead of the game and start preparing early, what do you need to consider as someone who’s self-employed? 

While the good news is that there are several options available to you when it comes to creating an effective retirement plan for your small business, recent figures indicate that just 14% of self-employed are currently saving into a pension. It is very important to remember that part of running a successful self-employed business is considering your financial future. This is not just in terms of the business itself but also for your own needs when you’re no longer working. 

There’s no denying that working for yourself means time can be limited. However, your retirement plans need to be a priority. The earlier you can start making contributions, the better off you’ll be. Here are some tips on how to plan for your own retirement. 

Get professional advice

From knowing how to access your pension to tax efficiency and income withdrawal plans, retirement income can be daunting. Working with a professional Financial Advisor can help to make digesting this information easier and will also instil peace of mind that you’re making the right choices for your financial future. 

As a self-employed individual running your own business, you want to be sure that you’re maximising your income in preparation for your retirement. An advisor can help you do just that, and they’ll have the knowledge to answer any questions you might have throughout this process, from the benefits available to you when you retire to the various ways you can reduce risk when it comes to investments. 

Understand your state pension forecast

The first step to planning for retirement, whether you’re self-employed or not, is to assess your State Pension forecast. This is the pension you can claim once you reach state pension age and it provides the foundation for the rest of your retirement earnings. 

The amount you receive depends on your National Insurance contributions record, which are Class 2 contributions when you’re self-employed. But if you’ve also been employed previously, or if you’ve received National Insurance credits, these also count. The current basic State Pension amount is £137.60 per week, although this changes yearly and isn’t necessarily the amount everyone will receive. Checking your State Pension regularly and assessing your forecast will help you plan ahead with an estimate of what you’re predicted to get, so you can factor this figure into your other retirement plans. 

Set a pension goal

We all have a vision of how we’d like our retirement to look and the type of lifestyle we want to have, but in order to make those dreams reality, it’s important that we consider the cost. Once you have assessed how much you’d need in retirement to fund the type of lifestyle you’d like to have, you’ll have a figure to aim for while you’re still working. 

There are several factors to bear in mind when coming up with this number, from the length of time your pension needs to last to how your investments need to perform to meet your goal. Your financial planner can help you determine what figure you might need for your retirement plans, so you can then break that number down into manageable contributions and make investment choices that will support the growth of your finances. 

Choose the right pension

When you’re employed, you’re automatically enrolled in a pension scheme, unless you choose to opt out. But when you’re self-employed, these contributions don’t take place unless you make them. There are several pensions you can choose from, including a Self-Invested Personal Pension, a Stakeholder Pension or a Personal Pension. Each comes with its own set of benefits and drawbacks to consider, so it’s important to do your research to determine the best one for you and your goals. Naturally, since you’re self-employed, you won’t have the added benefit of employer contributions boosting your pension pot, but you will still benefit from tax relief. 

In summary

Self-employment offers many benefits, from flexibility in your working hours to improved wellbeing and being able to pick and choose the projects that challenge and excite you. So it’s no wonder that the number of people switching from a conventional role to working alone has increased in recent years. 

But in being self-employed, there’s also the issue that you’re responsible for every decision, including financial ones. Your retirement should be relaxed and stress-free, so planning early and making the necessary changes to ensure that you’re not struggling financially can really help ensure you’re provided for in your autumn years.