How to Create Your Own Retirement Plan

One of the good things of working for a company is that they create a retirement plan for you. As an employee, you don’t have to do anything else but to participate in the plan. However, when you’re self-employed or a small business owner, you’re responsible of setting up your own retirement plan.

When it comes to operating your own business, time is of the essence. However, even if you’re crazy busy, saving for retirement should be a priority. Indeed, a retirement account allows you to contribute pre-tax money, which lowers your taxable income.

Luckily, a financial advisor can help you save time and help you choose the right plan that is best for you. Below are four retirement saving options you can create as a self-employer individual.

1. Solo 401k

A solo 401k is for small businesses or sole proprietors who don’t have any employees other than a spouse working for the business. The solo 401k mirrors a typical 401k plan that most companies offer. The main difference is that you can contribute as an employee and employer.

In other words, because you’re both the boss and the worker, you get to contribute in each capacity. That in turn allows you to contribute a higher amount each year. However, your total yearly contributions cannot exceed $58,000 or $64,000 for individuals age 50 or older as of 2021. To set up a solo 401k, you have to get in touch with a financial institution.

2. SEP IRA

If you’re an independent contractor, self-employed, or has a small business with 25 employees or less you can set up a SEP (Simplified Employee Pension). It’s very easy to establish and don’t even require you to incorporate your business to qualify.

In a SEP IRA, the employer alone contributes to the fund, not the employees. You can contribute up to 25% of your annual salary or $58,000 in 2021, whichever is less.

3. Keogh Plan

Keogh plans are available to self-employed people, including sole proprietors who file Schedule C or a partnership whose members file Schedule E. This type of plan is preferable among those who have a high and stable income.

But the main advantage the Keogh has is the high maximum contribution you can make. In 2021, you can contribute up to $58,000. To set up, you will need to work with a financial institution such as Charles Schwab. 

4. Simple IRA

The Simple IRA was created by the Small Business Protection Act to help those who work at small companies to save for retirement. The small business can offer the plan if it has 100 or fewer employees.

Both the employer and the employee can contribute up to $13,000 in 2021, plus an additional catch-up amount of $3,000 if you’re 50 or older. If a company offers a Simple IRA, it must match an employee’s contribution dollar for dollar, up to 3% of each participant’s annual salary or make a nonelective 2% contribution to all employees.

Where to Invest Your Keogh, SEP IRA, Solo 401k, Simple IRA

As a small business owner, there is always an investment program that suits your needs for your IRA, SEP, Keogh and solo 401k. Places such as banks, brokerage firms and mutual funds institutions such as Vanguard, Fidelity, Charles Schwab are great options. But before opening account, make sure you consider how much money you have, your appetite for risks, the annual fee, etc.

The Bottom Line

If you’re a small business owner or self employed, you should take advantage of the tax benefits offered by these plans mentioned above. Creating a retirement plan is important, because not only will you be able to grow your retirement savings faster but also no one is going to do it for you. 

Related:

  • 4 Simple Ways to Accelerate Your Retirement Savings
  • How to Retire at 50:10 Easy Steps to Consider

Tips on Retirement Planning

Retirement planning can be a major challenge, but you don’t have to go in it alone. Speak with a financial advisor who can help you come up with a unique plan based on your circumstances and situations. Use SmartAsset advisor matching tool to get matched with fiduciary financial advisors in just 5 minutes.

 

The post How to Create Your Own Retirement Plan appeared first on GrowthRapidly.

Source: growthrapidly.com

How To Retire At 50: 10 Easy Steps To Consider

Can you retire at 50? On average, people usually retire at 65. But what if you want to retire 15 years earlier than that like  at 50? Is it doable? Below are 10 easy steps to take to retire at 50.  Retiring early can be challenging. Therefore, SmartAsset’s free tool can match you with  a financial advisor who can help to work out and implement a retirement income strategy for you to maximize your money.

10 Easy & Simple Steps to Retire at 50:

1. How much you will need in retirement.

The first thing to consider is to determine how much you will need to retire at 50. This will vary depending on the lifestyle you want to have during retirement. If you desire a lavish one, you will certainly need a lot.

But according to a study by SmartAsset, 500k was found to be enough money to retire comfortably. But again that will depends on several factor.

For example, you will need to take into account where you want to live, the cost of living, how long you expect to live, etc.

Read: Can I Retire at 60 With 500k? Is It Enough?

A good way to know if 500k is possible to retire on is to consider the 4% rule. This rule is used to figure out how much a retiree should withdraw from his or her retirement account.

The 4% rule states that the money in your retirement savings account should last you through 30 years of retirement if you take out 4% of your retirement portfolio annually and then adjust each year thereafter for inflation.

So, if you plan on retiring at 50 with 500k for 30 years, using the 4% rule you will need to live on $20,000 a year. 

Again, this is just an estimation out there. You may need less or more depending on the factors mentioned above. For example, if you’re in good health and expect to live 40+ years after retiring at 50, $500,000 may not be enough to retire on. That’s why it’s crucial to work with a financial advisor.

Get Matched With 3 Fiduciary Financial Advisors
Managing your finances can be overwhelming. We recommend speaking with a financial advisor. The SmartAsset’s free matching tool will pair you with up to 3 financial advisors in your area.

Here’s how it works:

1. Answer these few easy questions about your current financial situation

2. In just under one minute, the tool will match you with up to three financial advisors based on your need.

3. Review the financial advisors profiles, interview them either by phone or in person, and choose the one that suits your’ needs.

Get Started Now>>>

2. Maximize your tax-advantaged retirement accounts.

Once you have an idea of how much you need in order to retire at 50, your next step is to save as much as possible at a faster rate. If you are employed and you have a 401k plan available to you, you should definitely participate in it. Nothing can grow your retirement savings account faster than a 401k account.

See: How to Become a 401k Millionaire.

That means, you will need to maximize your 401k contributions, for example. In 2020, and for people under 50, the 401k contribution limit is $19,500.  Also, take advantage of your company match if your employee offers a match.

In addition to the maximum contribution of $19,500, your employer also contributes. Sometimes, they match dollar for dollar or 50 cents for each dollar the worker pays in.

In addition to a 401k plan, open or maximize your Roth or traditional IRA. For an IRA, it is $6,000. So, by maximizing your retirement accounts every year, your money will grow faster.

3. Invest in mutual or index funds. Apart from your retirement accounts (401k, Roth or Traditional IRA, SEP IRA, etc), you should invest in individual stocks or preferably in mutual funds. 

4. Cut out unnecessary expenses.

Someone with the goal of retiring at 50 needs to keep an eye on their spending and keep them as low as possible. We all know the phrase, “the best way to save money is to spend less.”

Well, this is true when it comes to retiring 15 years early than the average.  So, if you don’t watch TV, cancel Netflix or cable TV. If your cell phone bill is high, change plans or switch to another carrier. Don’t go to lavish vacations.

5. Keep an eye on taxes.

Taxes can eat away your profit. The more you can save from taxes, the more money you will have. Retirement accounts are a good way to save on taxes. Besides your company 401k plan, open a Roth or Traditional IRA.

6. Make more money.

Spending less is a great way to save money. But increasing your income is even better. If you need to retire at 50, you’ll need to be more aggressive. And the more money you earn, the more you will be able to save. And the faster you can reach your early retirement goal.

7. Speak with a financial advisor

Consulting with a financial advisor can help you create a plan to. More specifically, a financial advisor specializing in retirement planning can help you achieve your goals of retiring at 50. They can help put in a place an investment strategy to put you in the right track to retire at 50. You can easily find one in your local area by using SmartAsset’s free tool. It matches users with financial advisors in just under 5 minutes.  

8. Decide how you will spend your time in retirement.

If you will spend a lot of time travelling during retirement, then make sure you do research. Some countries like the Dominican Republic, Mexico, Panama, the Philippines, and so many others are good places to travel to in retirement because the cost of living is relatively cheap.

While other countries in Europe can be very expensive to travel to, which can eat away your retirement money.  If you decide to downsize or sell your home, you can free up more money to spend.

9. Financing the first 10 years.

There is a penalty of 10% if you cash out your retirement accounts before you reach the age of 59 1/2. Therefore, if you retire at 50, you’ll need to use money in other accounts like traditional savings or brokerage accounts. 

10. Put your Bonus, Raise, & Tax Refunds towards your retirement savings. 

If retiring at 50 years old is really your goal, then you should put all extra money towards your retirement savings. That means, if you receive a raise at work, put some of it towards your savings account.

If you get a tax refund or a bonus, use some of that money towards your retirement savings account. They can add up quickly and make retiring at 50 more of a reality than a dream.

Retiring at 50: The Bottom Line: 

So can I retire at 50? Retiring at 50 is possible. However, it’s not easy. After all, you’re trying to grow more money in less time. So, it will be challenging and will involve years of sacrifices, years living below your means and making tough financial decisions. However, it will be worth it in the long run. 

Read More:

  • How Much Is Enough For Retirement
  • How to Grow Your 401k Account
  • People Who Retire Comfortably Avoid These Financial Advisor Mistakes
  • 5 Simple Warning Signs You’re Definitely Not Ready for Retirement

Speak with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning to retire at 50, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post How To Retire At 50: 10 Easy Steps To Consider appeared first on GrowthRapidly.

Source: growthrapidly.com