Increase with Increase

Whoo hoo! A new job, a raise, a bonus! Pay increases are great, but don’t forget your “future self!”

It’s that time of year! Make sure as you receive new salary increases, you are increasing your retirement contributions. A 1% increase per year is suggested. The purpose of this is to make sure you pay your future-self first before succumbing to lifestyle inflation that typically comes with more income. While it’s tempting to spend more as you begin to make more, try to use pay increases as an opportunity to increase what you save, not what you spend. Making more is also an opportunity to increase payments towards what you owe and further build your emergency fund.

However, the world will not end if you spend some now, just be mindful about how you do it. For example, if you absolutely hate where you live and can now afford to move to a new place, at least consider places that still give you room to contribute towards your retirement. Whatever increase you have left after you take care of your financial responsibilities can be discretionary money for you to enjoy.

January 23, 2019

retirement for entrepreneurs

Entrepreneurs need to save for retirement too!  So what do you do if you don’t work for a company that encourages retirement plans or even pays regularly?  There are still ways that you can save for your retirement as an solo-entrepreneur or small business owner.

First, some of the same tips apply—budget your money and automate your savings.  Managing your own finances is tricky for anyone, but for an entrepreneur it can be even harder given pay is not always regular.  By sticking to both of these actions, saving for retirement (and managing day-to-day money) will be a bit less daunting.  Also, be sure to keep your business finances and personal finances separate.  This will help you when it’s time to file taxes as well as when it’s time to budget.

The Solo 401k is a 401k plan is just what it sounds like—a 401k plan that covers a business owner or a business owner and spouse.  This plan is for sole proprietors, freelancers, independent contractors, business owners, etc that are in charge of their own income.  If your income comes from someone else, you will not qualify.  You also have to have proof of “presence of income.”  This is usually verified through tax records.  Similar to a company offered 401k plan, there is a traditional option, where pre-tax dollars are invested to be taxed at withdrawal and a Roth option where post-tax dollars are invested with no tax at withdrawal. 

The Simplified Employee Pension (SEP) IRA is another retirement account option.  This plan is to be used by business owners with employees who would like to make tax-deductible contributions on behalf of their employees, and themselves, to their respective SEP IRAs.  Eligible employees who would like to get SEP contributions from their employer must establish a traditional IRA to which the employer will deposit SEP contributions. 

A Savings Incentive Match Plan for Employees IRA (SIMPLE IRA) is a retirement plan designed for and available to any small business with 100 or fewer employees.  The employer establishes the plan through a financial institution that administers it and is required to contribute either a matching contribution of 3 percent of compensation or a 2 percent non-elective contribution for each eligible employee.

Whether you are self-employed with or without employees, one of the above options can work for you.  These suggestions are just a small representation of the possibilities and we hope this puts you in the right direction for saving for retirement.  It is important for everyone to save for the future, not just employees of corporations!

June 17, 2018

Would you rather?

Invest more, retire early or invest less, retire later?  For some, this is an easy question, but for others there may be more variables in play.  Let’s use this example:

A 30-year old investing $730 monthly (increasing 3% monthly each year) with 6% annual earnings would accrue $1 million by age 60.  A 30-year old investing only $523 monthly (same circumstances) would accrue $1 million by age 64.  So about $200 per month now could mean 4 extra years of retirement later.  This is where it is important for you to have your own goals.  Investing as much as you can is always a good idea, but if $200 now is a significant lifestyle difference, those 4 extra years later may carry less value than the $200 per month now—and that’s okay! Everybody’s financial journey and priorities will be different.  The important part here is that both individuals are saving something. 

It’s also important to think about compound interest.  According to the Rule of 72, investments will double about every 7 years, for the 30-year old investing $730 per month, that means he or she could retire with $1 million at 60 years old or $2 million at about 67—still a good retirement age.  With this in mind, the 30-year old investing $523 monthly has a more difficult decision— retire at 64 or wait until 71.  Neither option is bad, these are actually good options to have.  The worst case scenario is not having ANY money at 71 to retire with.  The moral of the story is to start saving and investing now so that your only decision is when you WANT to retire, not whether or not you CAN.

* These numbers are hypothetical and for illustrative purposes, rates of return will vary.  For investment and/or retirement advice for your own financial situation, you can make an appointment with an advisor at your bank. 

May 27, 2018

Cha-ching! Your compensation just increased. What’s next? Don’t throw your 2018 financial plan out of the window, pay yourself before you treat yourself! “Future you” will be thankful!

Instead of spending your extra money on something that will lose value, consider the following ideas:

  • Increase your 401k/Roth IRA contributions

  • Catch up on past due bills

  • Pay towards long-term debt

  • Contribute to your emergency fund

  • Invest!

February 9, 2018

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Retirement by the generations

New year, new resolutions.  Make one of your New Year’s Resolutions automating or increasing your retirement contributions.  We’ve explained the difference between a Traditional 401k and a Roth IRA, now it’s time to contribute.  Whether you are new to the workforce or have years of experience under your belt, planning for your retirement is key. 

Millennials: We have a few years of work experience under our belts by now, but we also may still have student loan debt.  It can be hard to want to contribute to our retirement accounts when we are so far away from retirement, especially after shelling out student loan payments, rent, and other living expenses.  However, we are actually in the best position to get started! Why? We have time.  Taking advantage of compound interest will allow our retirement accounts to double six times* between now and when we’re ready to retire.  If you can’t hit the recommended 10-15% contribution each month, at least make sure you are taking advantage of your company match.

Gen X’ers: You’ve gotten a few raises by now and probably have a better handle on any student loans or debt you had when you first entered the workforce, but now you might have other living expenses—mortgages, new cars, graduate school loans, child care—that you didn’t have 10 years ago.  These are critical years to not fall behind on your savings.  Your goal now should be having the equivalent or (2x the equivalent) of your annual salary saved away. To get to that number, make sure you’re getting your full company match and don’t be afraid to take on some risk in your investment portfolio—time is on your side!

Baby Boomers: You’re coming to the age where you’ll soon get to enjoy all of the time you spent saving and investing.  Your expenses might be more costly than ever with potential college tuition, home repair, and parent care, but don’t slack on your contributions!  The goal is to have 4-5 times your annual salary saved up.  If you’re worried about falling short of what you’ll ultimately need, look to your other portfolios and assets to help fund your retirement years.  However, this is also the time to seriously think about generational wealth! Yes, you will soon enjoy your 401k/Roth IRA, but also consider taking some risk in your investment accounts.  Your kids could be the ones to reap the benefits, if you decide not to cash out, same goes for owning the family house!

*Calculation based on 40 years until retirement

January 7, 2018


This material is for your information.  The opinions expressed may differ from those with different investment philosophies. This material is for informational purposes only and does not constitute investment or tax advice and it should not be relied on as such.