Self-employed clients still need to save

The self-employed can be their own worst enemies when it comes to retirement planning.

About 40% of self-employed Americans are not saving regularly for retirement, compared with 12% of those who work for others, according to a TD Ameritrade Inc. survey released Tuesday.

Even worse, 28% of the self-employed are not saving for retirement at all, compared with 10% of traditional workers, the online survey of 2,014 U.S. residents found. About 1,507 of those surveyed were self-employed.

“When you're self-employed, the temptation is to think that the business will grow enough that you won't need to save today,” said Lule Demmissie, managing director of retirement at TD Ameritrade. “Having a retirement plan in place with regular saving is doubly important.”

Financial advisers who have self-employed clients know many of these individuals often believe their business is their retirement — a strategy that can backfire if the business fails or if something happens to them.

Bart Allard, co-owner of Allard Financial Advisors, said he helps self-employed clients diversify their retirement savings beyond their business assets and helps them recognize their financial vulnerabilities.

One of the most important lessons he tries to impart is that self-employed clients need to keep their standard of living in check, even when their businesses take off, because they need to be prepared for down cycles.

“That's hard for them to do,” he said. “It's the American way that if there's money in the bank, they want to spend it.”

In fact, about 61% of self-employed people said unpredictable income is their top challenge, the TD Ameritrade survey found. About 33% said it's difficult to afford good health coverage.

Insurance is an important consideration for those who are self-employed, Mr. Allard said.

“We go through and make sure they have health, disability and life insurance,” he said.

It's especially important to discuss the importance of disability insurance with younger business owners because they are more likely to consider themselves “invincible,” Mr. Allard said.

For retirement savings, Mr. Allard typically recommends that self-employed individuals without employees set up a defined-benefit plan. For this year, the maximum retirement benefit permitted under these plans is $205,000. The maximum for 2014 is $210,000.