4 Ways to Catch Up on Your Retirement Savings Looking for ways to catch up to your peers who have been saving their entire careers? Here are a few ideas that can help.

When Andy and Joy Trotti sat down to look at their finances three years ago, they realized they weren't on track to have the option of retiring in a decade or so, as they'd hoped. Both self-employed in Tampa, he as an oncologist and she as a real estate entrepreneur, the Trottis wanted to find a way to boost their retirement savings quickly so that if they chose to stop working in their early sixties, they could do so comfortably. Together, they chose a financed retirement plan, a unique option that allows them to leverage the strength of their businesses now in order to retire comfortably later.

"A financed plan has worked well for us because we have an income stream from my wife's business that we haven't needed to use for day-to-day expenses," Andy Trotti says. "We dedicated that income stream to financing our retirement, and the returns have been quite amazing so far."

The Trottis aren't alone. Many entrepreneurs plan to work forever and later decide that having the option to retire might be nice. If you're looking for ways to catch up to your peers who have been saving for retirement their entire careers, here are a few ideas that can help you.

Financed Planning
Like the Trottis, business owners can borrow against the strength of their businesses, paying interest along the way, to guarantee a retirement income later. The Trottis use a plan available through Entaire Global Companies, Inc., which specializes in financed retirement plans for independent professionals and entrepreneurs. Lee Novikoff, president of Tidal Group, an oil exploration firm in Schertz, Tex., set up one of these plans two years ago and says it has provided returns averaging 15 percent. "Over the past two years, it's the only thing I have that has provided positive returns," he says.

Financed retirement plans invest business owners' money in indexed annuity funds that are often hedged so that the assets can only go up in value, not down. The plans are often available through Entaire's subsidiary Global Financial Distributors, or through independent insurance agents and certified financial planners.

Social Security
While millions of working Americans have for years counted on Social Security income during retirement, the government plan "was never created to be a sole source of retirement savings," says Donny Sheinwald, director of retirement services for CheckPoint HR and a counselor to small-to-mid-sized businesses on retirement options.

Most experts believe that workers retiring in the next five to 10 years can still count on receiving the benefits included on their Social Security Administration statement, says David Levi, CFP, CPA, managing director of CBIZ MHM, a financial advisory services firm. But most entrepreneurs will need additional income, since the average monthly payout of Social Security is $1,067 as of April 2010.

Although entrepreneurs planning to retire in the next several years may be able to count on Social Security to supplement their retirement income, "adjustments will be made to keep [Social Security] solvent, and this will most likely affect people under the age of 50," says Arthur Montgomery, president of Paramount Financial, LLC. "The major concern I have for many entrepreneurs is if Social Security goes to means-based testing, where they look at your assets and decide if you are too wealthy to be eligible for benefits. This can be bad for entrepreneurs because they tend to have substantial assets and not necessarily substantial cash flow."

Whole Life Insurance
For some business owners, a whole life insurance plan can offer additional income during retirement, as these plans offer guaranteed cash value accumulation that grows each year on a tax-deferred basis. This cash accumulation is sometimes referred to as a "living benefit," and business owners can access that growth to provide supplemental tax-free retirement income.

Borrowing against a life insurance plan offers tax benefits that aren't available from other retirement strategies, such as liquidating a stock portfolio, says Brian Trzcinski, director of business market development at MassMutual Life Insurance Company. "Like a 401(k) or IRA, the cash values in a whole life insurance policy grow on a tax deferred basis, meaning you do not have to pay taxes each year on any gain," he says. "The liquidation of investment assets, however, will generate capital gains taxes, and the distributions will be taxable as ordinary income. Life insurance cash values can be accessed without generating any income tax liability. Policy dividends and partial surrenders of the base policy can be received up to the owner's investment in the contract without creating taxable income. Additional cash values can be accessed through policy loans, again without income tax consequences."

Defined Benefit Plans
Growing in popularity, defined benefit plans are pension plans in which a company guarantees a specified monthly benefit during retirement. The benefit is determined by a formula that takes into account the person's age, earnings history and length of service rather than depending on investment returns. And the plans allow business owners to stash large amounts of cash tax-free, ideal for making up for lost savings time.

Financial planner Julie Murphy Casserly works with many older business owners who are opting to set up cash balance plans, a type of defined benefit plan that can potentially allow them to sock away more than $200,000 in pre-tax income each year for retirement.

Another defined benefit plan that offers tax-deductible contributions is a 412(e)(3) plan. These plans "will typically allow much larger tax-deductible contributions than other qualified plans, due to the amount needed to fund the purchase of annuity contracts over a relatively short amount of time, 10 to 15 years," says Jeffrey Landers, president of Bedrock Wealth Management, LLC.

412(e)(3) plans offer guaranteed monthly retirement income based on the claims-paying ability of the issuant insurance company. "At retirement, you would have the choice to receive a monthly income for the remainder of your life or a lower monthly income that would continue throughout your remaining life and/or your spouse's," Landers says.

Individual Retirement Accounts
While IRAs typically take more than just a few years to grow substantially, new rules for some IRAs are proving to be helpful for entrepreneurs trying to catch up on retirement savings. For instance, with a SEP IRA, a business owner can invest up to 25 percent of his or her pre-tax income, with a cap of $49,000 in 2010. "The challenge here is that if you have other employees, you have to do the same for them as you do for yourself," Casserly says.

With a Simple IRA, a business owner can contribute up to $11,500 in pre-tax income and the company can match $11,500 in 2010. And with this year's elimination of the income cap on Roth IRAs, "people can contribute to non-deductible IRAs and then convert them to Roth IRAs, thereby providing, under current law, a non-taxable retirement benefit that allows for tax-free growth on those funds," Levi says.