By the time you enter retirement, you’ll probably have limited options to generate income. So, it’s certainly a must for people to invest or save up for their retirement fund. However, not everyone is prioritizing retirement savings—especially for those who are self-employed.
The Transamerica Center for Retirement Studies conducted a study that surveyed 6,000 Americans including 800 self-employed workers.
It has been found that only 55% of self-employed people or business owners diligently save for their retirement. About 30% add to their savings occasionally, while 15% have said that they have not saved up for retirement. Among the self-employed, the median retirement savings value is $71K.
For traditionally employed workers, they can fall back on their 401 (k) plan, a sponsored retirement savings plan from their employers. Unfortunately, that is not the case for most business owners. However, they still have another option to take. They can open and fund an Individual Retirement Account (IRA).
One reason for this shortfall on retirement savings is that people who have their own businesses are planning to keep on working way longer than those who are employed. Being self-employed means that you will have more control over when you want to retire, unlike traditional work settings wherein age discrimination looms over older Americans.
This sense of flexibility has caused self-employed people to be lax when it comes to saving or getting insured.
Even with that flexibility, you shouldn’t expect to have complete control over your career. You never know what would happen in the future. According to the Employee Benefit Research Institute, the median age for retirement is at 62. However, a large number of people are expecting to retire beyond that age.
About 70% of self-employed people and 54% of traditional employees are expecting to retire beyond 65 years old—or maybe not at all. Unfortunately, 4 out of 10 Americans retire earlier than planned because of health problems or disability, changes in the organization, or the need to take care of a family member.
For those unexpected changes, self-employed people are said to be unprepared for the risks, according to the study conducted by Transamerica. Among them, 81% have health insurance, 46% have life insurance, while only 23% set up disability insurance.
Disability insurance serves as financial protection for when a person is not able to work for a long period of time because of injury or certain health issues. For insurance plans, it is better to apply for one the earliest you can as these tend to get more expensive as you age. The pay-outs for these policies usually last until age 65 or 67.
Even though retirement is still far from your plans, it won’t hurt to have back-up plans for those unexpected events.