Why Entrepreneurs Can’t Rely on Traditional Retirement Plans

When you’re hustling to build a business, you probably aren’t thinking about retirement. Aren’t 401(k) matching and HR departments making saving for your golden years seem like something reserved for corporate workers? As an entrepreneur, though, you’re charting your own course.

However, ignoring retirement as a business owner can present unique challenges. In a recent study from Georgetown University’s Center for Retirement Initiatives, 47% of U.S. workers over 18 were without a workplace retirement plan as of 2023. That’s a staggering 59 million out of 125.6 million private sector workers. When you include the 23.4 million gig workers navigating non-traditional employment, the number of those without access soars to 82.4 million.

Regardless, you are not protected by automatic contributions or a traditional pension as an entrepreneur. The conventional retirement system wasn’t designed to account for entrepreneurship’s dynamic and often unpredictable nature.

So, where does this leave you? You are potentially vulnerable if you don’t take control of your retirement. In the long run, it’s about the sustainability of your entrepreneurial journey and the legacy you leave behind. So, let’s explore why retirement planning is not a luxury, but an essential element of your entrepreneurial strategy.

Related: These Are the Expected Retirement Ages By Generation, From Gen Z to Boomers — and the Average Savings Anticipated. How Do Yours Compare?

The problem with traditional retirement plans

A traditional retirement plan, such as a 401(k), was designed with the employee in mind. Often, contributions are automated, employers match a percentage, and investing, vesting, and withdrawing funds are clearly outlined.

Entrepreneurs, on the other hand, live outside of this system. Specifically, here’s why the traditional retirement approach won’t work for you:

• There are no employer contributions. If you’re self-employed or own a business, your employer won’t match your contributions. In terms of long-term growth potential, that’s a significant loss. Hundreds of thousands of dollars could be saved with a 5% match over 30 years. Without it, you are fully responsible for funding your future.
• Inconsistent income. Income from startups and small businesses can be irregular or fluctuating. As a result, it isn’t easy to make consistent retirement contributions. Often, retirement savings are the first to be sacrificed in times of financial stress.
• Reinvestment mindset. Entrepreneurs are wired to invest in their businesses. People often say, “My business is my retirement plan.” While it may work for some, it can be risky. After all, there is no guarantee that businesses will grow linearly, and not every business can be sold for a large exit.
• Late start. While bootstrapping their business, many entrepreneurs fail to save for retirement. As a result, compounding of the most powerful retirement planning tools is less effective. In addition, entrepreneurs are on average 42 when they founded their companies, so they will have less time to take advantage of compound interest.
• Lack of formal planning. Without HR departments or financial advisors to guide them, entrepreneurs often ignore retirement entirely-until it’s too late.

Related: Everything You Need to Know About a Retirement Plan

What to do instead: build a self-reliant retirement strategy

When it comes to retirement planning, entrepreneurs need to be intentional. To achieve this, you should create a hybrid savings strategy that combines tax-advantaged savings with business-savvy investments.

The following six steps will help you take control of your financial future.

1. Set up a self-employment retirement account

There are several retirement vehicles available to self-employed people and small business owners. Depending on your income and goals, each has pros and cons:

• Solo 401(k). Business owners without employees can set up a solo 401(k) as an individual retirement plan. According to IRS rules, solo 401(k)s cannot be used by people who have full-time employees. However, their spouse can make use of the plan. The contribution limit is $70,000 in 2025, with an additional $7,500 catch-up contribution for people 50 and older. Catch-up contributions are increased to $11,250 in 2025 for people aged 60 to 63.
• SEP IRA. For small businesses, individuals, and firms with a small number of employees, a SEP IRA (Simplified Employee Pension IRA) makes sense. It’s a simplified version of a traditional IRA, allowing employers to contribute to their employees’ retirement plans. With a SEP IRA, you can contribute up to 25% of your gross compensation, with a maximum of $70,000 in 2025.
• SIMPLE IRA. Using a SIMPLE IRA (Savings Incentive Match Program for Employees), both employers and employees can contribute to employee-set-up traditional IRAs. This is an ideal retirement savings program for small employers that don’t already sponsor retirement plans. In 2025, the maximum SIMPLE IRA contribution is $16,500 for those under 50. For individuals 50 and older, the catch-up contribution is $3,500, which makes the total contribution potential $20,000 for individuals. An additional $5,250 is available for employees aged 60 to 63, bringing the total to $21,750.

Despite the absence of employer contributions, these accounts provide tax deferral and enable you to build wealth in a structured manner.

Related: 4 Ways to Save for Retirement Without a 401(k)

2. Develop a retirement tax strategy

Consult a tax professional about minimizing your current tax burden and planning for the future. Here are some examples:

• Reducing your taxable income by contributing to certain retirement accounts is possible.
• When you retire, you can withdraw money tax-free through Roth options.
• When selling a business later, you may face tax repercussions. But you can avoid nasty surprises by planning early.

Taxes shouldn’t be an afterthought; they should be part of your overall retirement strategy.

3. Look beyond your business for diversification

You are taking a big risk if you rely solely on your business for retirement funding. Keep in mind that industries change over time. Markets are constantly shifting. It’s also common for founders to burn out.

Therefore, you should start building personal assets outside of your business:

• Real estate (rental properties, REITs)
• Index funds and ETFs
• Dividend-paying stocks
• Annuities for guaranteed income later in life

By diversifying, you avoid becoming overly dependent on a single source of wealth — especially one that relies heavily on your everyday work.

4. Use annuities as a safety net

Entrepreneurs often overlook annuities. They can, however, provide a level of stability. You can think of them as the DIY version of a pension.

A fixed annuity, for instance, provides a guaranteed income for life, whereas a variable annuity provides some downside protection and investment growth. When you aren’t sure how to convert a lump sum (such as the sale of a business) into sustainable income, they can be beneficial.

There are different kinds of annuities, and the fees and flexibility can differ depending on your needs. Nevertheless, they can provide peace of mind to entrepreneurs without a pension or Social Security cushion.

Related: Why a Retirement Annuity is Better Than a 401(K)

5. Automate your savings

It is still possible to automate your finances even if you do not have an employer payroll system.

How? Set up automatic monthly transfers to your retirement and investment accounts. Over time, even small amounts, such as $200 or $500 a month, add up. By automating the process, you remove emotion from the equation and can stick to your plan.

6. Prepare a business exit plan

As a business owner, either of the following should be considered if you eventually decide to retire;

• Take a step back by generating passive income.
• To fund your retirement, you can sell or transfer your assets.

This means planning for scalability, documentation, succession, and valuation. The more transferable your business is, the more likely it will be able to contribute to your financial future.

Consult a business planner or exit strategist early on, rather than when you’re burning out and ready to give up.

Final thoughts: Don’t wing it

An entrepreneur is used to solving problems, taking risks, and thinking outside the box. Retirement, however, cannot be improvised at the last minute. Rather than relying on salary-based systems, you should create a real strategy.

Look closely at your finances. Take a hybrid approach, utilizing retirement accounts, diversified assets, and maybe even annuities. Most importantly, treat your retirement plan like your business plan: essential, evolving, and worthwhile.