Retirement Planning for Self-Employed People

I was having coffee with a close friend recently, and the conversation steered toward retirement planning. This friend of mine is self-employed and runs a successful business in town.

I asked him if he planned to keep working so hard even in retirement. "Of course not," he replied. I then asked him what his plan was. The conversation got a bit uncomfortable, and he almost choked on his coffee. Sensing the tension, I told him about my retirement plans.

I casually opened my phone and showed him how much I had saved so far in the NSSF retirement fund. He exclaimed and gasped! My friend could not believe how much I had in NSSF. "How do you have so much saved?" he asked. The funny part is, this friend earns a lot more money than I do. Yet when I asked him about his retirement savings, his face fell again.

This isn’t uncommon. Many self-employed people, even high-income earners, struggle with systematic saving for retirement. Unlike employees, who often have mandatory contributions deducted from their salaries, business owners don’t have a structure forcing them to save.

I explained to my friend that the secret behind my savings was simple: consistency and discipline. For 17 years, 15% of my salary had been deducted and sent to NSSF without fail. This consistency, plus the compounding effect, explains my small fortune. The challenge for business owners is that they don't systematically save with a pension fund like NSSF.

So I suggested a simple strategy for my friend. I recommended that he start saving at least ugx 500k per month in the NSSF voluntary scheme. I advised him to set up a standing order so he didn't have to think about it every month. Over time, this cash would build up to something tangible. The beauty of a pension fund is that you can't withdraw the cash until you reach retirement, which gives the cash enough time to compound.

I also suggested that he open a unit trust account for his business. Excess cash would be saved here and used as a cash flow buffer for the business. Once the unit trust account reached a certain threshold, the excess amount would be invested in a portfolio of long-term treasury bonds.

What we were trying to do was free my friend from working too hard in his business and build streams of passive income for the short, medium, and long term. The business would be the primary vehicle for generating cash, which would then build these passive income streams and prepare him for a secure retirement.

I explained that this is a prudent plan because the statistics don't favor him. Only a handful of businesses cross the ten-year mark, and as we age, we lose energy and vigor. Relying on your business alone to sustain you in retirement is not very wise. It is better to save with a pension fund like NSSF while the business prospers and then, in old age, rely on the pension income. Upon retirement, the business owner can choose to buy an annuity, which would guarantee him a monthly income for life.

By the end of our chat, my friend looked much more hopeful. Retirement planning may not be the most exciting topic, but it’s essential, especially for self-employed people. Building a solid retirement plan doesn’t have to be complicated. It just requires consistency, discipline, and a few smart decisions today to secure a comfortable tomorrow.

If you’re self-employed, don’t put it off. Your future self will thank you. Start small, stay consistent, and let time and compounding do the heavy lifting. After all, retirement should be about enjoying life, not worrying about money!