Small business owners are one of the most likely Americans to lag behind their retirement savings. Investing in businesses often takes precedence over investing in long-term tax deferred severance pay schemes for entrepreneurs with surplus cash. Covid didn’t help.
During a pandemic, many American small business owners are under pressure from rising labor and raw material costs, and in the worst case, face business closures, according to investment and layoff experts. , Suspended or reduced post-retirement savings.
To be sure, the pandemic hasn’t hit all SMEs with regard to retirement plans. According to a March survey by ShareBuilder 401k of 500 small businesses, 37% of small business owners say they are not confident that they are saving enough for retirement. But that’s a bit down from 44%, who said they weren’t confident in their retirement savings two years ago.
Some data show that, at least in margins, the savings rate of small business owners reflects the bumps of all Americans during the pandemic. In 2019, the average monthly contribution of active participants to a 401 (k) plan using the Guidelines, a retirement platform for small businesses, was $ 646. According to the company, it increased to $ 783 in 2021. In Vanguard, the participation rate of SMEs increased from 72% in the previous year to 73% in 2020, and the postponement rate in which part of employee wages contributed to retirement increased to 7.3% in 2020, 2019.
However, these results generally do not reflect much of the experience of domestic micro-enterprise, including those in industries that have been particularly hit. Many of these companies are lagging behind their recent retirement savings goals for a variety of reasons and need a kick start, according to financial experts. Coupled with the fact that many owners did not save for retirement, the recent market turmoil may be a good opportunity to consider sucking money, or more money, for retirement. not.
Here are some ideas on how to fill the gap.
1. If possible, put at least 10% of your income into retirement
Stuart Robertson, CEO of ShareBuilder 401k, generally suggests that investment professionals save 10% to 15% of their annual earnings over a 40-year career. However, a March survey found that only 38% of the companies surveyed saved more than 10%. On the other hand, 24% say they are not currently contributing.
2. Cut your budget and redirect to savings
David Peters, founder and owner of Peters Tax Preparation & Consulting in Richmond, Virginia, tells business owners to scrutinize their budgets, pay close attention to where they spend their money, and seek ways to reduce it. For example, you might be able to work from home to save gas or cut out unwanted luxury goods. “The wise move is to cut some of our current expenses so that we can continue to save for our long-term goals,” he said.
3. Increase the risk of your investment portfolio
Another option for those who are already saving is to take on more investment risk while reducing spending as needed. “Increasing quotas to increase the rate of return by 2-3 percentage points, reducing spending by 2% to 3%, and adding the power of compound interest calculation can result in very high rates of return.” Eisner AmperLLP in New York. Said Timothy Speiss, a tax partner at the Personal Wealth Advisors Group.
It may seem difficult to swallow it in the volatility of the market these days, but for small business owners who currently have cash, some money that may be cheaper. May be available. “People are afraid to see the red numbers appear every day and save them,” Peters said, but due to market volatility, “there may be opportunities not available otherwise.” Said.
As Dan Wiener, who runs an independent advisor for Vanguard investors I recently told CNBC’s Bob PisaniIf the S & P 500 falls by more than 3.5% on a single day or a series of days, we often do not buy the opportunity. Between June 1983 and the end of March 2022, this happened 65 times, with an average revenue of 25.6% the following year. “Purchasing these big discounts for the day has often made a profit if you’re willing to look at just one year,” he said.
4. Make a plan and stick to it
Owners of some small businesses may be concerned that the market will fall further, but retirement savings experts say things are time when owners regularly contribute to their retirement. Said it tends to be even. The underlying motivation is not to choose the best day, but to plan for long-term storage and sticking to it.
Investors can enjoy the benefits of the dollar cost averaging method by simply donating regularly. That is, we don’t always buy at high or low prices, says Kevin Basque, CEO and co-founder of the Guidelines. “If you forget to set it, you don’t have to worry about the timing of the market.”
Robertson gives an example of an investor who consistently buys a fund for $ 500 between high, low and recovery markets. First, investors buy 5 shares for $ 100 each. He then buys 10 shares for $ 50 each and finally 6.67 shares for $ 75 each. His total spending is about $ 1,500 and the average stock price of the fund is $ 75. However, the total market value of his 21.67 shares is $ 1625.25, so he is ahead of the game despite buying some shares in the high and low markets.
“They can be saved the way they want. The important thing is that they are doing it,” Robertson said.
