What’s Your Retirement Plan?

Can we talk about retirement for a minute?

It’s super important for business owners because we don’t have a pension, or a company sponsored 401k.

I’ve talked to too many self-employed people who are in their 30s and have not started saving for retirement yet. This is a huge mistake.

If you are self-employed, no one else is going to pay into your 401K, or give you health benefits. Your retirement is totally up to you.

Know that retirement is not about moving to Florida and going golfing every day. If that’s what you want to do, that’s cool, but that’s not what I’m getting at.

Retirement is about financial freedom.

Not worrying about what happens to social security because you won’t need it. Doing what you want in your later years, even if that’s continuing to work. Having the means to travel, or hang with your family more often, or build more homes in Mexico.

It doesn’t have to be when you’re 65, I want to retire in my 50s. Wouldn’t it be nice to work on something you love, and have time for your hobbies, without worrying about the bills, ever? That’s why retirement matters.

It isn’t difficult to get started, but get started you must.

How much do you need to retire?

When I first started thinking about saving for retirement, I had no idea how much I needed to save.

Vanguard retirement calculator

Vanguard retirement calculator

I found a retirement calculator online and ran some numbers, and I was shocked. All the numbers I ran ended in “Retirement savings run out at age 81” or “You need to save more.” I had to adjust the settings to save more, retire later, and use less of my income.

For example, let’s say you are 35 and you have $50,000 saved. At an income of $80,000/yr and saving 10% for retirement, you are nowhere near where you need to be. (Run your numbers here if you are curious about your situation)

It can be pretty discouraging.

These days people are living longer and getting less benefits from pensions and social security, and it’s scary to think about being old and broke.

How do you want to live in retirement?

“Without Social Security benefits, almost one-half of Americans over sixty-five would live in poverty.” – The Millionaire Next Door

With the average rate of savings of most Americans, they will have to live on much less money in their old age.

Do you want to live on 40% of the income you have now when you are 75? You might have a lower cost of living, with a paid off house and the kids all moved away, but maybe not.

Personally, I don’t want to live a sub-standard lifestyle when I’m older. I want to travel the world, eat good food, and live how I choose.

If I don’t save enough now, I won’t have the option to do those things.

Things you should not depend on for retirement

Saving and investing doesn’t have to be your only plan for retirement, but you don’t want to end up old and broke because your other plans fell through.

Here are some things you should not be depending on for your retirement:

1. Selling your business

You may think you’ll sell your business when you get older, and retire on that money. There is nothing wrong with this option, but lots of things can happen between now and then.

Selling your business can be a very difficult process, and you may overvalue your company. Talk to someone who has sold their business, or an investment banker who brokers these type of deals.

What if something bad happens and your business goes under? You never know, might as well invest in other areas to be safe.

2. Social Security

There are always the rumors of the demise of social security, and I don’t know if they are true or not. It certainly is not a sustainable government program, so I wouldn’t rely on it.

It’s not enough to live on even if you get it, consider it icing on the cake that you may or may not receive.

3. Figuring it out later

Don’t depend on some magical epiphany in your later years that takes care of your retirement for you. It won’t happen.

Saving and investing takes time, and the sooner you start, the better off you’ll be.

A Simple Retirement Plan

If you don’t know where to start, here’s a simple way to get started:

  1. Save 15% of your gross income
  2. Open an IRA and invest in the Vanguard Total Stock Market Index Fund

Save, stash it in a safe investment, and repeat. It’s that simple.

I think saving 15% of your gross income is a good place to start. Once you get comfortable with that, try to increase it to 20%.

An index fund is a low risk, long term investment in the stock market as a whole. It doesn’t require active management, and historical returns are around 7%. By investing through your IRA, you will get tax benefits.

You don’t need an actively managed mutual fund, you will lose too much money to fees.

There are a few different types of IRAs, many business owners can take advantage of a SEP IRA. Make sure to talk to your tax advisor on what the right account is for you.

There are other types of investments you can consider, such as real estate, but investing is a skill you need to learn. Put your money in an index fund until you learn more about investing in other areas.

If saving 15% of your income sounds like a lot to you, you should take a good hard look at how you are spending your money. Start a budget. Stop buying shiny things you don’t need. Most of all, live below your means.

Picture a time when you won’t have to grind for that next client, or worry about why sales are slow this month. Financial freedom is an attainable goal, but you have to get started today.


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