Retirement Planning for Small Business Owners and Self-Employed
If you're
self-employed or even if you own a small business, you don't have the luxury of
letting someone else set up your retirement plan. Those who work for themselves
have no choice but to get elbow-deep in their own retirement, talking to
advisors and setting up plans.
Such a
task can appear so daunting that many small business owners and those who are
self-employed don't even bother to take it up, forever kicking the can down the
road. But if you're your own boss, you need to start thinking about how to best
plan for the day when you don't work anymore -- sooner rather than later.
Start
With Some Basic Math and Budgeting
Bottom
line, you need to figure out how much you need to retire. But how do you do
that? She suggests that you start by looking at how much money you need to live
off of right now; then think about what your lifestyle is going to cost after
retirement. "Ask yourself what you want your life to look at when you're
67." An easy formula for that is to inflate your cost of living by 5%.
Don't Count on Your Business
I don't
think it's necessarily bad to see your business as a retirement plan. It's just
that if you want to retire and there's a downturn in the overall economy or
even just your business, you want to have alternate strategies in place.
It's not
about undervaluing your business; it's just about hedging your retirement
strategies. You don't want your future and your retirement to be at the mercy
of your business. You want to be creating some wealth outside of the business.
Time Is
On Your Side
The
earlier you start, the better. For small business owners who are in their 20s
or 30s, time is really on your side. One of the biggest mistakes people make is
not starting an IRA right away, time is a great wealth maker.
Compound
interest is one of the greatest wealth makers on record, so the sooner you
start investing for your future, the easier it's going to be to get to meet
your financial goals.
What Are Your Options?
Many
self-employed people don't start saving for retirement, because they don't know
what their options are. If your effective tax rate is underneath 25%, a good
option would be to choose a Roth instrument such as a Solo 401(k) or IRA. You
want to pay your taxes and be done with it. On the other hand, those paying 30%
effective taxes or above to defer paying taxes on retirement until later with
an SEP or other tax-deferred instrument.
That's
the easy part of the puzzle. Picking the right plan isn't the hard part.
How Much
to Put Away
Once
you've determined your instrument and how much you need at retirement, you can
start looking at different options of how much you need to put away. You need
to start making reasonable assumptions. For example, looking at a conservative return
of 5% to 6%, then seeing what that compounds out to over time. That will give
you a range of what you need to start putting away on a regular basis. This is
a simple calculation for us if you need help.
From there, it's mostly a matter of sticking to the plan -- and
changing it where need be.
It's not
just going to magically work. You have to tweak it. Life changes all the time.
To that end, it’s recommend meeting with your financial planner at least twice
a year, though quarterly is better.
Prepare
for a Lifestyle Change
One of
the biggest challenges for the self-employed person or small-business owner is
that there's a lifestyle change involved. The idea of retiring one day can be
hard for them to even consider. To that end, it’s encouraged to those who are
their own bosses to take a vacation that isn't also a working vacation. You
want to look at the emotional side of things, not just the assets. In our brand-new free report, our
retirement experts give their insight on a simple strategy to take
advantage of that can help
ensure a more comfortable retirement for you and your family.
vsperos@scaaz.com
#LifeInsurancePhoenix #RetirementStrategiesPhoenix
http://www.scaaz.com/
http://1lifeandretirementstrategies.blogspot.com/
https://www.linkedin.com/pub/vasilios-%22voss%22-speros/60/722/67b
85254
#LifeInsurancePhoenix #RetirementStrategiesPhoenix
http://www.scaaz.com/
http://1lifeandretirementstrategies.blogspot.com/
https://www.linkedin.com/pub/vasilios-%22voss%22-speros/60/722/67b
85254
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