Investment and Retirement Planning
- Determining How Much You Need To Save For Retirement Is Easier Than You Think
- How will you spend yours???
DID YOU KNOW: ONLY ABOUT HALF OF THE WORKERS TODAY AND ONLY 6 IN 10 OVER 55 YEARS OLD HAVE OVER $25,000 SAVED FOR RETIREMENT!!!
Many in the workforce working for someone else may have some form of a retirement program. As an independent businessperson, you are totally responsible for your own retirement planning. You want to save the right amount now, so that you can not only live comfortably today, but also when you retire.
The first step in planning this is to identify how much money you want (or need) in retirement. Many financial planners say that you should plan for 50% to 80% of your current income to live comfortably when you retire. This is because most of you should have your homes paid for and all of your children through school by then.
You need to pick the right income dollar for yourself. For the sake of a typical example for today, we will use $3,000 per month.
Your retirement income will basically come from two sources, Social Security and your own savings / investments. In the following, we have summarized the ways to look at each income source.
The Social Security System is basically made up of retirement benefits, disability income and Medicare health benefits. Both employers and employees fund it through the Federal Insurance Contributions Act (FICA) tax.
In the case of self-employed individuals (independent contractors), you must pay both the employer and employee equal amounts.
Social Security was never meant to be the only source of income for retirees. It was always to provide just a minimal base of income to be supplemented by your own savings / investments. Many financial planners say that you should plan for it making up about one-third, but no more than half of your total retirement income.
The amount of money you pay in FICA tax and the age you retire will affect your monthly benefit. The total dollar amount of benefits you will receive will vary by how short or long you live. Unlike your personal savings / investments, there is no “overall dollar amount” return on investment.
To find out how much you will get, “Your Social Security Statement” is available from the Social Security Administration either annually for some or by request. The report summarizes your estimated retirement income for various ages, along with your other benefits.
You can call 1-800-772-1213 and request a form. Fill it out with your projected income, mail it in and they will mail you back your personal statement. You can also go on-line at www.SSA.gov and fill out a similar request form.
They also have several on-line calculators to project your benefits without actually getting into your actual account. You can check out a new benefit calculator on the Social Security Web Site noted in the following Social Security Site and then clicking on the Benefit Calculator. After that, follow the instructions.
For most in our industry, the range of income from Social Security will be from $500 per month to $1,500 per month, depending on how much FICA tax you have paid in. For the sake of our example, we will use $1,000 per month from Social Security toward our $3,000 per month goal for retirement.
We next need to look at our own savings / investments for the difference ($2,000 per month).
YOUR OWN SAVINGS / INVESTMENTS
For self-employed individuals, there are several retirement investment plans with tax advantages available, if you meet certain qualifications set by Congress. These can take the form of a number of products including SEPs (Simplified Employee Pensions), IRAs (Individual Retirement Account) or other Self-Employed Plans (HR10, Keogh…).
This is in addition to any other pension, stocks, bonds, personal savings, investments, etc. that you may have.
A simple “Rule of Thumb” that you can use is:
–$2,000 per year for 20 years yields over $100,000 in any of the investments listed above
Note: this is using simple compounding at a conservative rate of return on investment
–A 15-year distribution of this investment yields (pays out) around $1,000 per month
If you want to have $2,000 per month from your savings / investments to meet our planning example needs of $3,000 per month, you simply need to save $4,000 per year. For example, this is the amount that you and a spouse can put back in a tax-qualified IRA plan each year.
You can also use this multiplier to vary your projections either up or down.
NOTE: While these estimates will get you into the ballpark, they will vary with the type of investment product, its performance, interest rates, etc. You should contact your accountant, financial planner or other investment experts to address your specific needs and expectations.
A QUICK RECAP!!!
There are many people in the marketplace who offer programs that can help you
Figure out how much you need in your retirement to live comfortably (50% – 80% rule)
Get projections of how much you will get from Social Security
Determine how much you need to make up through your personal savings / investments
Put your plan into action
ENJOY YOUR RETIREMENT!!!
THE BOTTOM LINE
Too many of your counterparts wish they would have known a simple way to look at this subject a long time ago. For some, it has ended up too little too late, but it doesn’t have to be that way for most of us.
Just take a couple of the pennies per mile of the operational savings you come up with from other issues we have covered in our site and invest in your own future.
NOTE: We can help you address this through some of our industry partners who have programs that can address both fleet and individual needs. Please let us know if we may be of any assistance.
Our final suggestion is to AT LEAST DO SOMETHING!!!
FOR TRUCKING FOCUSED FINANCIAL AND RETIREMENT PLANNING SERVICES
Alliance Assurance Logistics Underwriters Company
AALUCO Financial Services Link