Retirement Planning for Solopreneurs: Why You Can't Afford to Wait (Even If You're Earning Six Figures)
Here's an uncomfortable truth: Many solopreneurs—even those earning over six figures—have zero retirement savings.
And it's not just a solopreneur problem. According to the Federal Reserve's Survey of Consumer Finances, nearly half of U.S. households are in the same situation.
But here's the reality for hands-on professionals in beauty, wellness, and service industries:
There will come a time when you can't physically do the work.
As a solopreneur, your income depends on your output. That's powerful—it gives you freedom and control. But it's also risky. No employer pension. No 401(k) match. No safety net unless you build it yourself.
So let's talk about investing, retirement accounts, and why starting today—even with small amounts—matters more than you think.
Why Investing Your Money Matters (Beyond Just "Saving")
Money sitting in a regular savings account barely grows. Even high-yield savings accounts struggle to keep pace with inflation.
But money invested? It grows through compound interest—which means your money earns money, and then that money earns money too.
Think of it like planting a tree. The sooner you plant it, the bigger it grows. Wait too long, and you're trying to grow a forest in just a few years.
The Real Cost of Waiting: A Side-by-Side Comparison
Let's say you earn $100,000 annually and save 15% of your income.
If you start at age 25:
By age 65, you could have approximately $4 million (based on moderate market returns of 7% annually).
If you wait until age 45:
By age 65, you'd have around $765,000.
Same income. Same savings rate. But $3.2 million less because you waited 20 years.
That's the power of compound interest—and the real cost of waiting.
Every year you delay means you'll need to save significantly more later to catch up. In fact, financial experts estimate that every dollar you don't save today means you'll need to save three times more later.
The Tax Advantages You're Missing Out On
Retirement accounts aren't just about saving—they offer major tax benefits that regular savings accounts can't match.
Traditional IRA or 401(k):
Contributions are tax-deductible today (lowers your current tax bill)
Money grows tax-deferred (you don't pay taxes on gains until withdrawal)
Great if you want to reduce taxable income now
Roth IRA or Roth 401(k):
Contributions use after-tax dollars (no deduction now)
Money grows completely tax-free forever
Withdrawals in retirement are tax-free
Great if you expect to be in a higher tax bracket later
Either way, you're getting advantages that regular brokerage accounts simply don't offer.
Your Retirement Account Options as a Solopreneur
You have several choices depending on your income level and savings goals:
1. Traditional or Roth IRA (Best Starting Point)
Contribution limit: $7,000/year ($8,000 if you're 50 or older)
Pros:
Easy to open and manage
Low barrier to entry
No business required
Wide range of investment options
Best for: Solopreneurs just getting started with retirement savings
2. Solo 401(k) (Best for Higher Earners)
Contribution limit: Up to $69,000/year in 2024 ($76,500 if 50+)
How it works: Since you're both employer and employee, you can contribute in both capacities:
Employee contribution: Up to $23,000 ($30,500 if 50+)
Employer contribution: Up to 25% of your net self-employment income
Pros:
Massive tax-advantaged savings potential
Can choose traditional (pre-tax) or Roth (after-tax)
Catch-up contributions if you're behind
Cons:
More setup and annual filing requirements (Form 5500 once assets exceed $250K)
Must have self-employment income
Best for: Established solopreneurs earning $75K+ who want to save aggressively
3. SEP-IRA (Simplified Employee Pension)
Contribution limit: Up to 25% of net self-employment income, max $69,000
Pros:
Simpler than a Solo 401(k)
No annual filing requirements
Easy to set up
Cons:
Employer contributions only (no employee deferrals)
All contributions are pre-tax (no Roth option)
Best for: Solopreneurs who want simplicity and high contribution limits without the Solo 401(k) paperwork
4. Taxable Brokerage Account (For Extra Savings)
Contribution limit: None
Pros:
No contribution limits
Complete flexibility
No early withdrawal penalties
Cons:
No tax advantages
Investment gains are taxable
Best for: Investing additional income after maxing out retirement accounts, or for goals before retirement age
How to Start Investing for Retirement Today
Step 1: Choose a Provider
Look for platforms with:
Low fees (expense ratios under 0.20%)
User-friendly interface
Good customer support
Wide investment options
Popular options: Vanguard, Fidelity, Charles Schwab, Betterment (robo-advisor)
Step 2: Open Your Account
If you're just starting: Open a Traditional or Roth IRA
If you're earning $75K+: Consider a Solo 401(k)
Most accounts can be opened online in 15-30 minutes.
Step 3: Pick Your Investments
Not sure where to start? Target-date funds are an easy, low-maintenance option.
How they work: Pick a fund based on when you plan to retire (e.g., "Target 2055 Fund"). The fund automatically adjusts from aggressive to conservative as you approach retirement.
Other options:
Index funds (low-cost funds that track the market)
ETFs (exchange-traded funds)
Individual stocks (higher risk, requires more research)
Step 4: Automate Your Contributions
Aim for 15% of your income if possible. If that feels overwhelming, start with 1-5% and increase gradually.
The key is consistency. Set up automatic transfers from your business account to your retirement account so you never have to think about it.
How Much Do You Actually Need to Retire?
Financial experts suggest saving 10-12 times your final salary to retire comfortably.
Example:
If you want to maintain a $60,000/year lifestyle in retirement, you'd need approximately $600,000-$720,000 saved.
Sound overwhelming? Remember:
You don't need it all at once
Compound interest does heavy lifting over time
Even small contributions add up significantly
The real question isn't "Can I afford to save?"—it's "Can I afford NOT to?"
When to Hire Professional Help
Consider working with a financial advisor if you:
Have complex tax situations
Want personalized investment strategies
Need help with retirement planning
Feel overwhelmed by options
Important: Look for a fee-only fiduciary advisor—someone legally required to act in your best interest, not someone earning commissions from products they sell.
Where to find advisors: National Association of Personal Financial Advisors (NAPFA) or XY Planning Network
Your Action Step This Week
Don't let this be another article you read and forget.
Here's what to do right now:
Calculate 15% of your monthly income (or start with 5% if that's more realistic)
Choose one account type to open (start with an IRA if unsure)
Research providers and open an account this week
Set up automatic monthly transfers—even if it's just $100 to start
Remember: The best time to start investing was 20 years ago. The second best time is today.
Final Thought: Your Future Self Is Counting on You
In hands-on industries, your body won't let you work forever.
Your income today is strong because you're active, skilled, and working hard. But that won't always be true.
The money you set aside now—even small amounts—is what gives you freedom, security, and options later.
Don't wait until it feels comfortable. Don't wait until you're "making enough." Don't wait until you have it all figured out.
Start now. Start small if you need to. But start.
Your future self will thank you.
FAQs About Retirement Investing for Solopreneurs
Q: What if my income varies month to month?
A: Save a percentage rather than a fixed amount. In high-earning months, contribute more. In slower months, contribute less. The key is consistency over perfection.
Q: Should I pay off debt first or start investing?
A: Pay off high-interest debt (credit cards, personal loans) first. For lower-interest debt (like a mortgage), you can often do both simultaneously—pay down debt while contributing to retirement.
Q: Can I access my retirement money if I need it?
A: Generally, early withdrawals before age 59½ trigger penalties and taxes. However, Roth IRA contributions (not earnings) can be withdrawn penalty-free anytime. This is why emergency funds are crucial.
Q: What if I'm already in my 40s or 50s—is it too late?
A: No. While starting earlier is ideal, starting now is still significantly better than waiting longer. Focus on maximizing contributions and consider catch-up contributions if you're 50+.
Q: Do I need a business entity to open a Solo 401(k)?
A: No. You just need self-employment income reported on a Schedule C. You can be a sole proprietor.
Q: How do I know if I should choose Traditional or Roth?
A: If your tax rate is lower now than you expect in retirement, choose Roth. If you want to reduce taxable income now, choose Traditional. When unsure, many people split contributions between both.
