Question: I’m 54 with a $320,000 IRA and am transitioning into self-employment with a projected annual income of $120,000. How much of that can and should I be saving for retirement? What are the best tools for self-employed savers?
Answer: Making the leap from a salaried position to self-employment can be challenging. However, there are also several benefits.
For one thing, being self-employed allows you to work from your location of choice. If you’re 54, you may no longer have the energy to deal with a lengthy commute. As more companies call employees back to the office full-time, transitioning to self-employment could mean getting to work from home and avoiding the hassle of daily commuting.
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Or, it may be that you’re moving into self-employment to follow your passion. If you no longer have kids living under your roof and have a solid financial cushion, your mid-50s could be a good time to pursue a line of work you find more rewarding.
If you’re 54 with $320,000 in your IRA, you’re ahead of the game on the retirement savings front compared to the typical American your age. As of the second quarter of 2025, the average IRA balance for savers in their 50s was $129,222.
Still, that doesn’t mean you should necessarily be done saving for retirement. If you were to leave your $320,000 invested at a yearly 8% return until age 67, which is your full retirement age for Social Security, you could end up with around $870,000. That’s a nice-sized nest egg, but you may want more.
Becoming self-employed might make saving for retirement more challenging, at least initially. But it’s important to make it a priority.
Aim to save 15% of your income — once things stabilize
When you’re transitioning into self-employment, you might go through a period of income volatility. It’s okay to pause retirement plan contributions at the onset as long as you commit to starting back up again once your income stabilizes, says Brennan Decima, Founder and Managing Director at Decima Wealth Consulting.
“First, focus on creating six months of cash flow security to give some cushion for your variable income,” he says. “Once that is in place, I suggest to my clients to try and save at least 15% of their income towards retirement.”
Brian Heckert, Founder and Wealth Manager at FSM Wealth, Inc., agrees.
“Having been self-employed for the last 40 years, I have gone from boom to bust with the economy and market cycles,” he says. “Assuming everything is working well, and the $120,000 [annual income] is net of expenses, I would like to see them continue at least as much as they have been saving as an employee — hopefully at least 10-15% of the net income.”
Use the right retirement savings account
Being self-employed gives you more options when it comes to retirement savings plans.
“There are three qualified plan options available for a self-employed person – a Solo 401(k), a SEP IRA, and a SIMPLE IRA,” says Heckert. “All three plans are flexible from year to year, and the contributions can be made up until the tax deadlines.”
If you’re aiming to save 15% of a $120,000 income, or $18,000, all three of these accounts allow for a contribution that large at age 54, Heckert explains.
Decima happens to be a fan of the Solo 401(k) because it gives people “the flexibility of making tax-deductible contributions in years their income is higher, or doing Roth contributions in years where income is low.”
If you’re self-employed and pay yourself a salary, a Solo 401(k) may allow for higher contributions than other retirement plans. However, it’s best to consult a tax professional for advice on your specific situation, as there may be variables to consider outside of your self-employment income.
Make the process automatic
Once you get into a steady income flow, you may want to automate the process of funding a retirement account rather than write your savings a big check at the end of the year.
“It’s really easy to spend money when it comes directly to our bank accounts,” Decima says. “Automating the savings where it goes directly to the 401(k) conditions you to pay yourself first, making it easier to stay on track and reach your future goals.”
One thing you may want to consider is automating a baseline contribution each month, and then assessing your net income at the end of each year. If your income allows for more savings, you can always make an additional contribution. But this way, your retirement account will have been funded throughout the year.
Don’t let fear hold you back
If you’ve been a salaried employee for most of your career, giving up the security of a stable paycheck can be daunting. But your 50s are actually a great time to take a chance on yourself, Decima insists.
“I recently left a high-paying job of almost 20 years to start my own company as well,” he explains. “The leap was both revitalizing and intimidating.”
If you end up in a self-employment situation that’s mentally and financially rewarding, it may be something you can continue doing during retirement. That could be a great way to stay busy later in life while boosting your income. In the near term, the key is to give yourself grace with retirement plan contributions initially while you adjust, but then prioritize them as soon as you’re in a good place income-wise.