Think small business owners can’t save for retirement? Think you can’t help your employees save, either?
It’s time to rethink your old suspicions -- and and get in the retirement savings mindset.
TJ Houppert, an accredited retirement plan consultant who works with business clients and their employees at Paychex, offered the grim reality of retirement savings on the latest episode of the SCORE Small Business Success Podcast:
“Savings rates for Americans could use some work,” She admitted. “Currently they’re at 5 percent. We’re not saving enough.”
If you think that five percent of your annual income is going to snowball into a healthy retirement nest-egg, it’s time to get out a calculator and start planning realistically for retirement.
Save for your own retirement
Just because you don’t have an employer to provide a benefits package doesn’t mean you can’t have one. “If you are a business owner, you can have a 401(k) plan,” Houppert said. “You have a right to start a 401(k) plan because you’ve taken on that risk as a business owner.” She likes the flexibility and affordability of a 401(k) plan, which allows you to save up to about $18,000 per year before company matching.
Of course, there are many options available for small business owners, from IRAs to 401(k)s and more. Visit the Department of Labor for a breakdown of different options, and ask your SCORE mentor about programs that may work best for you.
Most importantly, don’t assume the eventual sale of your business will net you millions, or that you’ll be able to work until you’re 95. Taking action now can help ensure a comfortable lifestyle long after your tenure as a small business owner.
Help your employees save, too
Houppert said it’s not as expensive as you think to offer retirement plans to employees -- about the cost of a smartphone bill each month. Administering your plan takes even less time and energy if you tie your benefits package in with your payroll service.
There’s even a tax incentive just for offering 401(k) plans for your employees. You can receive a credit of $500 per year over three years if you set up a 401(k) plan for your business of 100 or fewer employees. That credit can cover a big portion of your administrative costs.
Not ready to match employee contributions? Don’t worry. You’re still encouraging employees to save and providing a systematized way to do it. “The biggest thing is that you’re saving, period,” Houppert said.
For Beatriz Bonnet, offering a more robust set of employee benefits has helped her to recruit and retain qualified employees for her translation company, Syntez Language Group. By using a third-party 401(k) administrator, Bonnet’s employees can select their own mutual funds. “I want people to feel invested in the company,” she explained in a SCORE case study.
Meet with a SCORE mentor to learn how you can best save for retirement -- and help your employees save, too.