As a business owner, you are the one that is responsible to prepare for your retirement. No one else is going to do it for you. So, if you have not started preparing for that day, it is time to start. Several options will give you good results.
Calculate How Much You Will Need
Being that people live longer now, it is necessary to have more retirement money set aside than 15 years ago. Most financial counselors say that you should have a combined total of money saved and social security that will equal between 70% and 90% of your current expenditures by the time you retire. This figure assumes that you will need less to live on after you retire.
As you calculate the amount needed to retire, you also need to add in amounts for inflation. Inflation lowers your total buying power over the years and it will be considerable over a 20-year period. This is usually calculated at three percent per year. While social security often compensates for inflation, keep in mind that social security is expected to be reduced by 20 percent in 2035.
It’s Up to You
Being self-employed, or if you are a gig worker, your retirement depends entirely on what you put away. This makes it all the more important that you get started as early as possible. Most American men live to be about 79 years old and women live about three years longer than men. If you plan on retiring at 65, it means you will need to have money for about 20 years. Social security does not pay full benefits now until after age 67. You will also need to eliminate your bills before you retire.
Determine What You Want to Do After You Retire
Knowing what your plans are for your retirement years will also play a factor in how much you will need. Planning on traveling around the world will cost more than simply staying local. Picking up hobbies will also cost.
Available savings plans have limits on how much you can contribute each year. An IRA, for instance, will let you contribute up to $5,500 per year ($458 per month) if you are 49 or younger. Once you reach age 50, you can deposit up to $6,500 yearly ($541 per month).
With a Simplified Employee Pension (SEP), you have the opportunity to contribute a much larger sum. You can contribute 25% of your total income or $53,000, whichever is smaller.
If you choose to get a SIMPLE IRA, the contribution limits are higher than with a traditional IRA. If you are younger than 50, you can contribute up to $12,500, but those over 50 can contribute up to $15,500.
Potential Problems with Contribution Limits
When you start saving late, it means that you need to increase your contributions even more. It is not so much of a concern if your spouse is also working and will have made sufficient payments into social security, or if there is another retirement plan being paid into. Otherwise, you may need to get more than one retirement plan to be able to make sufficient contributions on time.
Consider Working Longer
If you think that you may not be able to save enough money in the remaining years you have, there is the possibility that you may be able to work longer. Many retirees are now working past 65 – partly because they do not have enough money to completely retire, but others simply choose to work longer to continue getting a better income and stay busy.