Q: I’m self employed and I don’t know how much I should save for retirement.
Business owners don’t have the luxury of having a company match, have an additional burden of self employment tax and usually have to pay for their own benefits. Retirement often falls further down the list than it does with rank and file employees. For business owners, here are a few things you should have in place.
Setup a retirement plan – Without something in place, you can’t ever contribute. Opening the account is the first step, and many times the biggest hurdle. At minimum do a Traditional or Roth IRA. They can be opened with just $500 or less. You can contribute $5500 per year, $6500 if you are over age 50. There are many retirement plan options available. Stonepath Wealth Management can help you decide which type of retirement account will be best for your situation.
Setup systematic contributions – Employees of large companies have their contributions automatically deducted, why shouldn’t you? Choose an amount that you know you can stick to, even if it’s only $100 per month.
Have an emergency fund – business owners not only have unexpected home repairs, auto and medical expenses, but also a business that could face a crisis where additional funds are needed. A good rule of thumb is to have 3-6 months of personal expenses readily available and 6-12 months of business expenses put away for unforeseen emergencies.
Shoot for 15% – Start early, if you save 15% of your income each year beginning at age 25 and invest it wisely in diversified investments, retirement should be well in reach by age 65.
Work with a tax advisor – Be proactive about your planning. If you do your own taxes each year, you aren’t able to ensure you maximize deductions during the year. You need to save as much as you can on your taxes.
Harrison Kennard is the co-founder of Stonepath Wealth Management in Ann Arbor, a Michigan-based independent wealth management firm that practices comprehensive, holistic financial planning and asset management. Location: 1925 Pauline Blvd A, Ann Arbor, MI 48103; Phone: 734.369.8143; Online: www.stonepathwm.com
If you have a financial question, send to Harrison firstname.lastname@example.org
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