Retirement planning is one of the most important topics for small business owners. The difference between proper retirement planning and poor planning can be hundreds of thousands of dollars over the course of a career, making it vitally important to understand the best ways to maximize retirement planning knowledge. Improving your financial literacy can help you reduce the risk of losses in your retirement accounts, maximize long-term returns and understand exactly how much you need to save to achieve a comfortable retirement.
Small Business Owners Need to Work Even Harder
As a small business owner, you’re not going to have access to some of the advantages that come with working at a company. Employees at a company probably have access to a Registered Retirement Savings Plan already populated with investment choices to build a nest egg. Moreover, many employers match employee contributions to their accounts, helping their savings grow even faster.
You won’t have either of these at your disposal. You’ll need to do your own research to find the best investment options for your money, and you’ll need to save even more just to keep up with your contemporaries.
Start Small If You Have To – But Start
It’s easy to get discouraged by the big numbers. You’ll need to save for 40 years or more. You need to save at least $1 million. Bigger goals need to be broken down into smaller, more achievable milestones. Once you do, you’ll see that those bigger goals aren’t so impossible after all.
For example, imagine that you start saving for retirement with a modest $50 monthly investment and can earn a moderate 6% annual rate of return. Over 40 years, that $50 per month investment turns into $100,000. Push your savings rate up a little higher, and you can quickly see how your savings grow.
You don’t need to start with much, but make sure you get started. The earlier you start, the longer you have to let your retirement savings grow larger. People who start saving for retirement at age 40 or 50 probably won’t have 40 years to save. The ultimate goal is to increase your savings rate up to 15% of your salary or more.
You Can Enjoy a Comfortable Retirement – Even If You’re Getting a Late Start
Most workers aren’t nearly as prepared for retirement as they should be. They often don’t understand what they need to do or how to get there. Financial literacy doesn’t come naturally, which is why it’s important to do your homework.
If you’re middle-aged and haven’t started saving for retirement, all is not lost. You may require extra saving and maybe a few extra years in the workforce, but a comfortable retirement is still within your reach. The best way to figure out what you need to do is to conduct an honest assessment of what you want your retirement to look like. Estimate major expenses, such as food, rent, travel, insurance and medical expenses. Once you figure out how much your retirement will cost, then you can work on figuring out how much you need to save to get there.
If you need to strike a better balance, look at ways to cut back. You can consider travelling only part of the year or downsizing your home. You can also look at where you can cut back spending now to boost your savings. Crunching the numbers now is better than finding out too late that you don’t have enough.
Make It Automatic
If you have to write a cheque every month to add to your retirement savings, there will probably be a few months when you either forget or decide you don’t have the money to contribute. The best way to solve this problem is to set up an automatic savings plan. Arrange to have money withdrawn automatically from your chequing account and deposited into your retirement account. You won’t have to worry about writing cheques or remembering to contribute.
Hire a Financial Advisor if Needed
If you’re still confused, work with a financial advisor. There are dozens of websites with lists of highly rated investment funds and products, but sometimes it takes an expert to help put it all together. A financial advisor can guide you on how much you should save, what investments you should be putting your money into, and even tax and post-retirement planning.