Barista Magazine

AUG-SEP 2018

Serving People Serving Coffee Since 2005

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What's Your Retirement Plan? Small-business owners and baristas alike should be saving for retirement. It doesn't matter if your income fl uctuates or hovers around minimum wage. Getting used to saving even a little bit each month can help tremendously down the road. By Tracy Allen PLANNING FOR RETIREMENT can feel daunting, or even irrel- evant if you're still in (or near) your twenties. But as any fi nancial ad- visor will tell you, it is never—ever—too early to start saving for your golden years, nor is there too small an amount to start with. Although it can feel like you're fi nancially strained when you're young, in reality you probably have fewer commitments than you will down the road, so get into the habit of saving now. Even if you're thinking you never want to retire, don't count on earning nearly as much as you do now when you're older. Income peaks between 45 and 54 years of age—and research shows that it declines by as much as 29 percent after age 65 (accounting for retire- ment income and/or wages). As my own fi nancial advisor, Brandon Turner, says, "Even putting away $100 a month can have a profound impact on your retirement. Getting started is the hardest part, but if you have $50 taken out of your biweekly paycheck, over time you don't notice. You never saw it in the fi rst place." Brandon often suggests that clients increase their savings by a little bit, every few months or so. "If you're saving $50 a check, what's $60 or $75? When people can get into the habit of saving and incremental- ly increasing their commitment, all of a sudden we're putting a decent pile of cash into savings." And if you plan for the inevitable early on, you will be well rewarded in the three or four decades that will fl y by sooner than you think. The longer you wait the harder it will be, both fi nancially and emotionally, to maintain a reasonably comfortable lifestyle when your prime earning years fade away. Also, waiting to save for retirement will jeopardize your ability to outlast your income resources. You need time and compound interest to enhance your investments and build retirement savings. Here are some planning suggestions to help you move forward: • Start saving for retirement—today. The trick to making compound interest work (sometimes referred to as "interest on interest") is time—something you can't get later. But if you're in your thirties or fourties (or even your fi fties!), that's no excuse not to start saving, either. You never know what life events may break the bank, so start saving as soon as you can and continue throughout your career. Contribute to your 401(k), especially if your company provides a match, or create an IRA and a Roth IRA. On a 401(k) or Roth IRA, you won't have to pay any income tax on the money you put into it, instead delaying the taxes until funds are withdrawn for retirement. If you have your own business, research a Solo 401(k) or a SEP IRA. Be mindful of the contribution limits on these plans. It is your responsibility to know and understand the IRS rules as they apply to your own contributions. Also, offering some sort of retirement plan for employees can help with retention. • Set up an emergency fund. In addition to retirement savings, fi nancial advisors recommend creating an emergency fund over time. "Too many people don't have anything to fall back on except a credit card—which can become an endless hole to dig out of," says Brandon. He advises that single-income households save six months of expenses toward food, shelter, and transportation. For a dual-income household, you might be able to get away with three months of expenses if you think you can live frugally. This fund will need to be in place through- out your retirement years, and used strictly for dire emergencies. • Get the advice of an accountant or other tax professional who understands IRS rulings for retirement money. Even if you do your own taxes, have a professional check your numbers and advise you on changes in the tax law that could affect you for better or worse. As you get closer to retirement, they will be helpful in suggesting tax minimization strategies for your retirement years, as well as keeping you abreast of any changes in retirement plan distribution rulings. • Also, hire a good investment professional. You go to the doctor to help you stay healthy, so why not work with an investment profession- al to plan for fi scal health in retirement? Don't blindly throw money at a goal and hope you're achieving it, because you're probably not. Hire an actual certifi ed fi nancial planner (CFP)—not just a stock broker— as CFPs are bound to act in a fi duciary capacity, and are held to higher standards with respect to the advice they give to clients. For business owners in particular, "Your fi nancial advisor is your quarterback who can get your CPA, tax attorney, and any other advi- sors on the same page," says Brandon. "They can help you structure your business distributions, including salaries, in ways that are most favorable under current tax laws. And once that's all set up in the correct way, then we look at opportunities for investment savings. If we've structured your business correctly, we've saved you some money on taxes—which results in extra money that can be put into savings that doesn't affect cash fl ow of the business." Acknowledge that you can't learn everything about business and tax fi nance, and fi nd advisors you can trust. The ins and outs get complicated fast, and these professionals are up on their stuff. Adds Brandon, "If you think you can fi gure this stuff out by surfi ng the Internet, good luck." • Don't touch your retirement money, no matter what the perceived emergency might be. "But we really needed the money" is the most common reason given for dipping into retirement savings. Don't do it. This includes loaning money to children or anyone else who says they'll pay it back with interest. The power of compound interest growing over decades cannot be replaced. Planning and discipline 98 barista magazine

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