Ready To Retire? Retirement Planning Advice For Entrepreneurs
The statistics are in, and they are harrowing. Most people don’t have enough (or anything at all) for retirement.
A concerning 22% of Americans have less than $5,000 saved for their retirement.
Planning for the future is vital, but no two strategies are the same. Moreover, entrepreneurs need specific retirement planning advice that caters to their flexible and dynamic needs.
Let’s get into what you need to know.
Planning In The Early Stages
You’re just mapping out the course of your business. You’re hungry, green, and willing to grind hard to yield positive outcomes. The opportunities feel limitless, and you’re ready to do whatever it takes for success.
While you may be focusing on your business exclusively, don’t forget to focus on how your money is working for you. Doing so will benefit you in the long run (and it can also improve your business’s cash flow).
Look Into Tax-Advantaged Retirement Accounts
When you work for an employer, you are usually eligible for company retirement benefits. These benefits vary, but they may include pensions or a 401(k). However, entrepreneurs are on their own when it comes to retirement planning.
Simplified Employee Pension (SEP) IRA
SEP IRA plans are straightforward and relatively painless for entrepreneurs and sole proprietors. You can invest up to 25% of your net income. In 2019, the max contribution rate is $56,000.
Solo 401(k) plans are similar to popular 401(k) plans in the workplace. In these plans, you act as an employee and employer. As an employee, you can contribute up to $19,000 annually. As an employer, you can contribute an additional 25% of income up to $56,000.
Likewise, if you have your spouse in the plan, you can double the contributions. This strategy alone can lower your taxable income tremendously.
Savings Incentive Match Plan for Employees (SIMPLE) IRA
Simple IRA plans allow you to invest as a solo entrepreneur and as an employer. If you hire employees onto your company, you commit to matching their contributions at least 3%.
Planning In The Middle Stages
Once you already have an established nest egg, you might be wondering what lies ahead. This planning process requires some number-crunching and some emotional soul-searching.
Identify Your Retirement and Your Number
Not sure when you can afford to retire? In its simplest form, you can retire if you can afford to live the lifestyle you want without generating additional employment-based income. Indeed, many people retire and never work a day in their lives again.
Of course, this isn’t a hard rule. Many entrepreneurs choose to step into part-time, freelance, or consulting-based roles. Some do it for the money; others do it because it provides a sense of fulfillment and productivity.
Your “number” refers to how much you need to have saved to retire comfortably. This number varies from person to person.
There are many different calculators available online to help you determine this figure. Some experts report that you need about 80% of your pre-retirement income after you retire. They agree that you should divide the desired annual retirement income by 4% to determine the best savings rate.
That said, it’s often wise to consult with a professional. This kind of financial planning will help you understand your current situation- and it will help you determine what to expect in retirement.
Attempt To Max Out All Contribution Limits
If you can afford to max out your retirement accounts, aim to do so as early as you can. Maxing out your contribution serves several purposes.
First, the glorious power of compounding interest will serve you well in your retirement. The math here tends to be simple. The younger you are when you start saving, the longer you have to enjoy your money working for you.
Moreover, by maxing out your contribution limits, you reduce your taxable income. All business owners know how detrimental high tax rates can be to overall profits. By lowering this income, you can save thousands of dollars (or more) each year.
Planning In The Late Stages
You’re getting close to the finish line. Are you feeling excited- or are you full of dread? Rest assured that both emotions are normal. Change, after all, can be emotionally complex!
Define Your Exit Strategy
What will happen to your business when you no longer want to work? Do you hope to pass on the company to a family member or current employee? Do you want to sell it entirely?
No matter how involved you are in the business, the day will come when you can no longer be the head honcho. You want to plan for this day accordingly. This plan will have financial implications- which can be either good or bad.
Be Mindful Of Your Emotions
Regardless of what you choose to do with your business, you’re going to experience some intense feelings about it. After all, your business may be a sum of a lifetime’s worth of labor and love.
With this, you must give yourself time and space to move through these emotions. You don’t want to make rash decisions overnight. Likewise, you don’t want to hurt your financial future.
Don’t be afraid to reach out to a mentor who can assist you during this time. You may benefit from the additional support greatly.
Final Thoughts On Retirement Planning Advice
Preparing for your future can be both exciting and nerve-wracking.
However, as an entrepreneur, you must take these steps to ensure your financial security.
If you are ready to retire, ready to start planning your retirement or need any financial planning help, call us at 419.491.0909 or email us. Our team is made up of financial experts who can help you ensure your financial future and retirement is secure. We will help create a custom plan based on your needs, ensuring you can move to and live wherever you desire after retirement.
Retirement. Your Vision. Our Passion
Investment Advisory Services offered though Macino Financial Services, a Registered Investment Advisor.