Never Too Soon: Planning for Retirement as a Child Care Business Owner

May 24, 2023

One of the most overwhelming parts of owning a business is taking care of your own benefits, including retirement planning. However, as a child care business owner, it's never too late to start and use the latest retirement and wealth growth advice to secure a bright financial future. By following these tips and considering the additional information, you can ensure that you're well-prepared for your retirement, just like any other employee.

Step #1: Look Into Available Plans

To start, it’s important to understand the retirement plans that are available to you. As a self-employed person, you have access to various retirement plans similar to those offered by employers. Familiarize yourself with these options to make informed decisions:

  • Simplified Employee Pension (SEP): Similar to IRAs for employees, SEP allows you to open your own tax-free IRA. You can contribute up to 25% of your net earnings (before tax payments) or up to $66,000 in 2023.
  • 401k Plans: You can establish your own 401k plan, mirroring the ones provided by companies to their employees. The contribution limits are the same as SEP plans for 2023.
  • Social Security: Contrary to popular belief, self-employed individuals, including child care business owners, do contribute to and receive social security benefits. You accrue social security credits based on your annual income, just like W2 employees.
  • Individual Retirement Accounts (IRAs): Consider traditional IRAs or Roth IRAs as additional retirement savings options. Research the eligibility criteria and contribution limits for each type to determine what works best for you.

Step #2: Create a Budget

Once you choose the retirement savings plan that is best for you, develop a budget that includes regular contributions. Evaluate your income and expenses to determine how much you can set aside each month. Consider the bigger picture and ensure that your chosen amount will be sufficient when you retire. Remember that these contributions are typically tax-free, maximizing the value of your savings.

This calculator can help in your planning.

As a child care provider, you also have the unique benefit of setting your own rates. When you initially set your rates, it’s important to consider the benefits that you would be receiving at a W2 job, including retirement, and build them into your plan. This may mean that tuition is slightly higher than you were expecting, but that extra amount gets set aside for your retirement plan each time you receive a payment.

Step #3: Diversify

Diversify Your Investments: It's essential to diversify your retirement portfolio to manage risk and potentially increase returns. Consult with a financial advisor who specializes in retirement planning to create an investment strategy tailored to your needs.

As a child care business owner, diversifying your retirement portfolio means investing your retirement savings in different ways to protect and grow your money. Instead of putting all your savings into just one type of investment, like buying shares of a single company, it's smart to spread your money across different investments, just like you spread your attention and care among the children in your daycare.

Why is diversification important for you as a child care business owner? Well, just like children have different needs and behaviors, investments can also behave differently. Some investments may do well during certain times, while others may perform better in different situations. By diversifying, you can reduce the risk of losing all your money if one investment doesn't do well.

Step #4: Accept Support When Available

Take advantage of any tax and retirement planning support available to you as a child care business owner. Professionals in these fields can provide valuable insights into your budget, investment options, and long-term goals.

Step #5Consider Long-Term Care Insurance

Plan for potential healthcare needs in retirement by exploring long-term care insurance options. This coverage can help mitigate the costs associated with nursing homes, assisted living, or in-home care.

Continually Review and Adjust Your Plan: Regularly review your retirement plan and make adjustments as needed. Stay informed about new retirement savings options, tax laws, and investment strategies that could benefit you as a child care business owner.

Step #6 Seek Professional Guidance

Retirement planning can be complex, so consider consulting with a certified financial planner (CFP) or retirement specialist who can help you create a comprehensive plan based on your unique circumstances and goals.

Remember, regardless of where you are in your journey, it's never too late to start planning for retirement and leveraging the latest strategies for wealth growth. Start today and secure a bright financial future for yourself as a child care business owner. With the right approach, you can build a solid foundation and enjoy a fulfilling retirement.

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