Working for an employer definitely has its advantages when it comes to retirement planning. That doesn’t mean you are out of luck just because you are self-employed. It does take a bit more planning, but following these tips can take some of the guesswork out of things.
Know your Options
Independent contractors and small business owners have quite a few options when it comes to retirement plans. A few of those choices include:
- Simplified Employee Pension Individual Retirement Account (SEP IRA)-This plan allows employers to contribute on behalf of their workers, and has no minimum contribution requirement.
- Solo 401 (k)-Designed for sole proprietors, a Solo 401(k) allows you to contribute up to 25% of your business earnings.
- Savings Incentive Match Plan for Employees (SIMPLE)-This one is similar to a SEP IRA, but requires minimum contribution amounts (part of which can come from your employees).
- Defined Benefit Plan-Basically a pension plan you set up yourself.
Each of these plans comes with its own advantages and disadvantages. You may find that a SEP IRA or Solo 401(k) is ideal in the beginning when you have few or no employees. As your business grows, you might find a SIMPLE plan more appropriate. When nearing retirement, you could prefer a defined benefit plan, which will allow you to stash large sums of cash away.
Set Retirement Goals
Before opening a start-up, one of the first things you should do is create a business plan. Part of that plan should include how and when you will save for retirement. In other words, you need a set of goals to aspire to both now and in the future. Too many entrepreneurs overlook the fact that retirement planning and business planning go hand in hand, and wind up getting caught off guard when it is time to stop working.
Who Will Pick up the Reins?
Another issue business owners must face is the inevitable handoff of operations once they retire. Will your spouse or children be responsible for keeping things going, or will one of your trusted employees take over the wheel? Would you rather sell your business outright or shutter your doors completely? Your business is more than just your livelihood-it is your legacy and reputation as well. As such, any decisions as to how it will continue should not be taken lightly.
Consult a Professional Advisor
To grow your business and your retirement account, consult with a financial advisor. This individual can guide you in decisions related to your business as well as your personal financial affairs. Large companies have financial advisors at their disposal, and there is no reason for you not to as well.
There’s a great deal of satisfaction that comes from knowing you are in control of your livelihood. As a self-employed individual, you can also enjoy peace of mind about your retirement. If you have thought about starting your own business but were afraid your retirement planning might suffer, you’ll be glad to know that you can indeed have both.Continue reading
Age 50 is when many people suddenly realize that it is time to start planning for retirement. Others may have been planning for years, but begin to wonder if they are on the right track. Regardless of which category you fall in, there are some things you should be doing during your 50s to help you get ready. Here are a few things you should place on your to-do list.
#1. Come up with a savings plan
Maybe you haven’t started saving because you feel you cannot afford to. Perhaps you are already saving but are not putting away quite as much money as you would like. Establishing a budget will help you find extra money to set aside so you can begin saving money or increase your efforts. Set realistic goals and then reward yourself whenever you achieve them.
#2. Review your investment plan
During your fifties is an ideal time to look over your investment plan. That way, you can see if you are on track to meet your goals and decide whether or not to make changes. At this stage, it’s important to have every detail in order, even if it means hiring a retirement planner to help you get there. Once your plan is in order, make plans to re-evaluate it at least once a year or so.
#3. Take advantage of “catch up” plans
A recent survey showed that empty nesters increase their 401(k) contributions by one percent on average after their last child leaves home. That is not nearly enough for many workers to meet their retirement goals. Once your children have “flown the nest”, plan to set aside four to five percent more if possible. Take advantage of the “catch up” contributions and add up to $6,000 more per year to your 401(k) plan.
#4. Force children to become independent
There’s a good reason why many 50-somethings don’t save more-many have children who are still financially dependent on them. While helping kids through hard times is admirable, the fact is that having grown children who are relying on you to pay their bills isn’t healthy for either one of you. Learn to say “no” and force your offspring to become responsible for themselves. In the long run, both of you will be better off for it.
#5. Don’t wait to downsize
There’s no reason why you have to wait until retirement to downsize. If your home is too big or you have more vehicles than what you need, get rid of them now while you are still working. Apply your monthly savings toward investments and you’ll be that much farther ahead once retirement comes. As a bonus, you’ll also spend less since you will not have as much space to store things in.
These are just a few of the things you can do in your 50s to prepare for retirement. Even small things such as these will make a tremendous difference, so do not put off getting started any longer.Continue reading
You probably expect Social Security to account for the majority of your retirement income. As such, it only makes sense to know as much as possible about these benefits. Here is some important information about Social Security we think you should know about.
#1. Your filing age can affect your benefits
Many people will become eligible to draw money at age 62. Even so, that does not always mean you should file for Social Security benefits at that time. Your monthly checks increase if you wait until full retirement age, which varies based upon the year you were born. For those born in 1960 or later, that age is currently 67 (not 65 as is commonly thought). The Motley Fool estimates that by filing too early, people can lose out on as much as 25% of their lifetime benefits.
#2. Put off collecting payments, but do not delay too long
You are not required to draw Social Security just because you have reached full retirement age. In fact, waiting past your full retirement age can net you an estimated 8% more in earnings each year. However, those benefits only extend so far, as they stop accumulating after age 70. After that time, there is no longer any incentive to wait.
#3. Your benefits may be smaller than you have anticipated
The average monthly Social Security payment is just $1,404 as of January 2018. That’s not an especially generous figure for most folks, as it comes out to less than $17,000 annually. Many retirees are shocked to discover just how little they are entitled to draw, and are unprepared to live on that amount. The truth is that Social Security was never intended to replace one’s income, but rather was designed to supplement pensions and other savings during your retirement years.
#4. Your Social Security income could be subject to taxes
Thirteen states including Vermont, Minnesota, and Connecticut all tax Social Security benefits to some degree. Others may tax benefits only if you have other income from interest or earnings. Your part-time earnings could even be subject to higher taxes in many states. This means you should not count on any set amount of “take home pay” until after you have reviewed state and local tax laws.
#5. Survivors can draw benefits
In some cases, widows and widowers can be eligible for survivor benefits. Generally speaking, if you are at full retirement age you can draw the same amount your husband or wife received before passing. You may even begin drawing benefits at age 60, provided you have not yet remarried (remarrying after age 60 will not necessarily render you ineligible). Disabled children are sometimes eligible for up to 75% of a parent’s benefits as well.
Knowing how Social Security works can help you get the most from this benefit. Planning to maximize your Social Security benefits is good, but saving and investing in other areas is even better. Speak with a retirement planner to ensure that Social Security is not the only income you must rely on.Continue reading
Saving money for retirement is something everyone should aspire to do. That doesn’t mean that you can stop putting funds aside once you finally stop working for good. It’s always a good idea to continue saving money, even after retirement. The following tips will help you continue adding cash to your savings account.
Reconsider your Lifestyle
Many new retirees are surprised to learn that their cost of living actually increases during the first few years following retirement. That’s because people have to fill their spare time with something, and a good number will do so by traveling, shopping, or eating out.
This sudden change in lifestyle can take a chunk out of your savings, and may even make it impossible for you to keep putting money away. Don’t get caught off guard-plan what you will do and where you will go very carefully to ensure you are still able to save at least a little bit of money.
Take Advantage of Discounts
Now that you’re retired, you may be eligible for “senior” discounts on everything from travel to dining out. Merchants are not the only ones offering discounts, as travel clubs, credit unions, and social organizations may also offer savings on everything from rental cars to online purchases. If you are ever unsure as to whether or not a discount is available, just ask.
Partner with other Seniors
Buying in bulk is a great way to save money. However, you may find it impractical if you are now an empty nester. Chances are that there are others who are in exactly the same boat as you. Ask other seniors you meet at church or your local senior center to partner with you. Purchase groceries, cleaning supplies, and household goods in bulk and split the cost so that both of you can save.
Another idea would be to share meals. You and a friend could each prepare seven meals and split each one in half. That way, you each have 14 perfect-sized meals that you can pop out of the freezer, heat up, and enjoy. Not only will this save you time, but money as well.
Let’s face it-it takes a lot of time and effort to shop for the best deal. You may not have had that time when you were still working, but now that you are retired there is no reason not to. Set aside a few hours each week to scour newspaper ads and online deal sites to find the best value for your dollar. And don’t forget to sign up for as many coupon sites as possible, and use them in conjunction with sales ads to score goods at rock-bottom prices.
These are only a few ways you can continue to save money once you retire. Of course, any of the methods you used while you were working are still good ideas as well. The most important thing is to make a conscious effort to save so that you are never caught off guard by the unexpected.Continue reading
Over the past twelve months, the stock market has become especially volatile. A stock market correction followed by massive selloffs of stock have left many people feeling uncertain about their investments. This is especially true for those investing in stocks as part of their retirement strategy. Should you reevaluate your investment strategy now or simply wait for the market to realign itself? Here’s what some leading investment experts are saying.
Increase in People Seeking Advice
Retirement planners everywhere have recently noticed a groundswell of people looking to reevaluate their investment plans. It seems the market’s uncertainty has many wondering whether or not they are on the right track.
Naturally, those who are closer to retirement age or have stock-heavy portfolios are more concerned than others. However, the fact that the stock market has been especially volatile as of late does not necessarily mandate a change in retirement planning. Most retirement planners advise against making emotional decisions, and instead recommend looking at a variety of factors first.
Number of years before retirement.
Workers who are very close to retirement may not want to assume as much risk as those who are younger. That’s because there is less time available in which to recover losses.
On the other hand, you could need to assume slightly more risk if you are not quite where you need to be. That doesn’t necessarily mean choosing high-risk investments, but it could require you to diversify your portfolio a bit.
This refers to the amount of risk you are comfortable with, and varies from person to person. If you are operating outside your comfort zone, chances are that the recent fluctuations in the stock market could be causing you a great deal of anxiety. No amount of future earnings is worth losing sleep over at night. If the stock market has caused you undue stress, it could be time to make some changes.
Perhaps it has been awhile since you began investing. If so, your goals may be far different now than they were in the beginning. Recent life changes could also have impacted your goals, meaning that revamping your investment plan is now in order.
Plans after retirement
You might not have thought about it, but the way you plan to live after you retire can greatly impact how much money you need. When reevaluating your retirement plan, consider whether you will need to make other changes such as downsizing your home or continuing to work at least part time. Think about ways to cut expenses and stretch the dollars you do have as much as possible.
The stock market will always fluctuate, though more so at certain times than at others. Even so, market changes do not always mean your retirement plan is always in jeopardy. A stock market can be the right time to reevaluate your plan to ensure it still fits your needs. Make changes based on the totality of the circumstances rather than emotion to achieve the best possible results for you.Continue reading