- June 13, 2016
- Posted by: Richard Takemura
- Category: Investing, Lifestyle
What to do when planning retirement
When you work at a brick and mortar company for someone else, planning retirement isn’t as big of an issue as when you work for yourself, online or off. Typically, companies have a 401(k) plan their employees can opt into. Often, employers match a certain amount of contribution, making at least some of retirement planning passive and easy.
However, when you’re an entrepreneur, it’s all on you to figure out a retirement plan. Though it can seem overwhelming and sometimes confusing, you have the advantage of having more control over your plan than with what employers offer you. Here, we offer some tips and information to help you in planning retirement.
Don’t Underestimate the Importance
No matter how much you love what you do, someday you will want to retire, either fully or partially. Obviously, in order to stop or reduce your work, you need money to survive. It really is that simple. If you haven’t yet considered retirement as an immediately important issue, or if you think you’ll never want to retire, think again. Our lives and our jobs are fluid and ever-changing. It’s imperative to have a net.
In 2011, the Schwartz Center for Economic Policy Analysis at the New School released a study, the first of its kind, which showed more than half of working-aged Americans were not adequately prepared for retirement. They projected a trending decline in sponsorship and participation in future years. This study also projected alarmingly high numbers of people who will live in poverty, and in some cases extreme poverty, after retiring. Given these trends, it’s never been more important than it is now to start planning and saving for retirement as soon as possible. Otherwise, you’ll be left relying on social security and liquid assets alone. At best, this will likely lower your standard of living significantly.
Start With Savings
Freelancers and entrepreneurs should have at least three months’ worth of living expenses saved up. More is better, but three months is a good start to cover you in case of lost work or an emergency. When you have this stowed away, you can begin allocating a chunk of your income, ideally 10%-20%, to a retirement fund.
Explore All Options
There are several retirement options available. The simplest ways to start may be with an IRA or Roth IRA if you have only a small amount you can afford to contribute. These plans have small contributions limits.
A Roth IRA may make more sense to those farther away from retirement age than others. Although you have to pay taxes on it now, you won’t be taxed upon withdrawal. This means you can withdraw at any time without penalty. A traditional IRA requires paying taxes later instead of up front.
If you have more income available to contribute, you may consider a solo-401(k) plan. It’s limits are higher, but it’s a bit more complicated and regulated than IRAs and Roth IRAs are. These are just a few options to begin with for retirement planning.
Do some research, find a reputable brokerage firm or bank, and talk with them about which plan best meets your needs and abilities. Many online brokers, such as TD Ameritrade and Scottrade, have little or no fees to set up and maintain retirement accounts. You might also consider an automated investment service. While they do have service fees, these companies handle all aspects of your investments so that you don’t have to.
Retirement planning for small business owners and entrepreneurs can be daunting. However, by taking it one step at a time, and using the right tools and advice, you can secure your low or no-working future. No matter the plan or broker you choose, it’s important to get started now.
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For more information about what tools you can use when planning retirement, contact me here.