The best pension for the self-employed depends on income and employee status, with the Simplified Employee Pension (SEP) IRA being top-tier for higher earners due to high contribution limits (up to $70,000 or 25% of compensation in 2025). For solo entrepreneurs, a Solo 401(k) allows higher savings, while Traditional/Roth IRAs are best for beginners.
SEP IRA - SEP IRAs (Simplified Employee Pension Individual Retirement Accounts) offer tax-deferred growth for businesses of all sizes, but they tend to be best suited to self-employed individuals, small-business owners, or members of a partnership.
The $1,000 a month rule is a retirement guideline suggesting you need about $240,000 saved for every $1,000 per month in desired income, based on a 5% annual withdrawal rate (5% of $240k is $12k/year, or $1k/month). It's a simple way to set savings goals, but it doesn't account for inflation, taxes, or other income like Social Security, so it's best used as a starting point, not a complete plan.
If you're self-employed, you'll be eligible for the State Pension as long as you've paid at least ten years of National Insurance (NI) contributions. To get the full State Pension you'll need to have paid NI contributions for at least 35 years.
Take your age and divide by 2. This number (as a percentage) is how much of your pre-tax salary you should into your pension every month. For example, if you're 30, you should aim to add 15% of your pre-tax income into your pension every month.
If you're self-employed, non-working, a business owner, or have an income that varies from month to month, setting up a pension could be the best way to save for later life. A pension plan gives you greater choice, flexibility and financial wellbeing when you come to retire. And it comes with tax benefits too.
According to recent data from SmartAsset [1] and AARP [2], here's how retirement income and savings stack up in 2025: Average individual retirement income: $60,000/year or $5,000/month. Median individual retirement income: $47,000/year or $3,900/month. Average retirement income for couples: $100,000/year or $8,300/ ...
What is the best pension for the self-employed?
The 4% rule is a retirement guideline suggesting you can withdraw 4% of your initial retirement savings in the first year, then adjust that dollar amount for inflation annually, with a high chance your money lasts 30 years. Developed by William Bengen, it assumes a balanced 50/50 stock/bond portfolio but doesn't account for taxes or fees and may need adjustments for longer retirements, higher costs, or different investment mixes, with some experts suggesting lower rates (like 3.9%) or dynamic strategies (like guardrails) for modern retirees.
It's best to start saving into a pension as early as you can, to maximise your retirement fund. Someone who starts in their 20s will have to put aside a much smaller proportion of their earnings to build the same pot as someone who starts saving in their 40s.
An IRA is probably the easiest way for self-employed taxpayers to start saving for retirement. There are no special application requirements, and you can start one whether or not you have employees. For 2025, the contribution limit is $7,000 per year, or $8,000 if you're aged 50 or older.
Your $500,000 can give you about $20,000 each year using the 4% rule, and it could last over 30 years. The Bureau of Labor Statistics shows retirees spend around $54,000 yearly. Smart investments can make your savings last longer.
A 401(k) plan can be an easy way to save for retirement, because you can set the money to come out of your paychecks automatically and go directly into whatever investment you choose (limited to what the employer offers on its plan's investment menu).
Running out of money in retirement means drastic lifestyle cuts, relying heavily on Social Security, needing to work longer, selling assets like your home, or seeking public assistance for essentials like food, housing, and healthcare, often leading to significant stress and reliance on family or government programs for basic needs.
If your assets exceed the threshold, your Age Pension will gradually decrease. For example: A single homeowner with more than $321,500 in assets will start to see a decrease in their Age Pension payments. If their assets reach $714,500, their Age Pension payments will be reduced to $0.
If you're self-employed, you'll need to choose a pension provider and product yourself. This is called a personal or private pension. Many personal pension schemes are run by insurance companies, banks or building societies.
Clare Moffat, pensions expert at Royal London, says that one way you can avoid an emergency tax charge is to take a notional amount out of your pension first to trigger a tax code from HMRC. Once this is issued, you can withdraw the amount you need, which should be taxed at the appropriate rate.
The best-known retirement savings option for most people, not just for the self-employed, is an individual retirement account (IRA). You open an IRA with your bank or investment brokerage firm. You then save money each year with a combination of tax breaks. There are two basic types of IRAs: traditional and Roth.
In fact, one in five retirees (22%) live on less than £1,000 a month, falling below the Pensions & Lifetime Savings Association's (PLSA) minimum standard for covering essential costs in later-life (£1,200 a month, £14,400 annually). A key factor of happiness in retirement is financial status.
The top ten financial mistakes most people make after retirement are: