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Financial Planning and Retirement

a lot of times as entrepreneurs, we start working and we get so excited about our business and we feel like, oh, this is great, I never want to retire or some people are like, hey, I only wanted this for a few years, sell this thing and then keep it moving. But either way I want you to understand as an entrepreneur, we have retirement plan options as well. Okay, we really do. So yes, you do need a financial plan and you can save for retirement even as an entrepreneur and I know a lot of times when people, you know, decide to start a business, I think that's one of the first things that family members are concerned about, their like, oh no, you don't have health insurance and oh no, you don't have a retirement plan, It's like, it's cool because I'm gonna make so much money that I can fund all that stuff on my own. That's what I told my family. So, but essentially I want to make sure that each of you understand that you can create a retirement plan and create these specific benefits for ...

yourself as well. So the first thing that we talked about this before is setting financial goals, you need to have a financial goal in place when it comes to your retirement into your financial plan as well? So that means, you know, how long do you want to work? What are your goals? Are you looking to buy a house? Are you looking to have a baby? Do you want to relocate all these different things and these specific financial goals are really going to be the leading factors are the determining factors of how you're going to make moves financially as an entrepreneur And trust me you can put money away starting today, pre tax and after tax just as if you did when you had a traditional 9-5. So some of the main things we have our Roth ira swirling K. Personal funds. These all can help support and fund our retirement. So there's a couple of different retirement options that you have as a entrepreneur or as a self employed um person. So one of the things which is really common is the Ira and Roth Ira. So we're gonna go over the difference between that also a step Ira and a solo for him. Okay so I'm sure you've heard of the I. R. A. And a Roth Ira. So basically what A I. R. A. Is, it's an account that allows you to make contributions up to $ a year and once you're over age 50 you can add an extra 1000. And essentially once you put money into an ira you are able to deduct the amount that you are contributing to the account. Now with a Roth ira, anything that you put in you can take out completely penalty free. Now with the regular ira, anything that you put in, you'll face a 10% penalty if you withdraw it before retirement age which is 59 a half. So that's why Roth Iras are super popular because anything that you put in, you can take out completely penalty free which is awesome. And so let's say if you decide to drop $5500 into a Roth ira today and the next week you're like, hey I want to like I don't know go to bora bora for whatever reason you can actually take everything that you put in completely out penalty free. But let's say if your account jumps from to 6000, so you have $500 in earnings That means that you would have to pay a 10% penalty only on the earnings which would be that $500 which is really cool. And another upside to the Roth ira is, it's all after tax money which means that once you do hit retirement age which is 59 a half, you do not have to pay taxes on any of the money that you put in or any of the earnings that you've had To date in that account which is awesome which is also why they only let you put in $5500 a year. Now this amount can change year after year. So make sure that you're always checking with the financial institution to confirm that the maximum contribution is still 5500 because it does change over time. Another really great place you to save as an entrepreneur is a step I. R. A. And step iras are very popular because it allows you to contribute a lot more. So basically it's 25% of your the income or compensation or up to $51,000. Which is awesome. So that Stigned you to put way more money into an account than you could with a separate. And even also with the traditional 401K. So you also have your solo 41 K. Now for one case are probably one of the more popular retirement accounts. But the cool thing and a lot of people don't know is that you can actually have a solo four oh one K. Just for yourself. Now most people think that you can only have one through your respective employer but you can set one up just for yourself. So you can go to your brokerage firm or wherever you're Holding your investments and say hey I want to set up a solo 401K. Just for myself. And with this one you can contribute um 18,000 an employer contribution. But you can also do profit sharing as well from your business up to 53,000. So and obviously these amounts do change year after year based on the I. R. S. Rules so make sure you verify with um with your investment firm or whatever banker using how much you can contribute because they do change your year over year. Now when it comes to all of these different retirement accounts, you want to make sure that you are aware of any financial penalties for moving funds around or taking funds out early. And what what will happen for a lot of people is like I said, listen to all the financial experts say here will start dropping money into a retirement account and then they'll need to take the money out and like I said earlier, the only account that you can put money in and take it out penalty free is with your Roth ira all the other accounts that you're putting money into, you're going to face a 10% penalty in addition to whatever your current tax bracket is to take that money out. So example if you decide to put money into even a solo 41 K and you decide you need the money, I don't know, six months a year from now, you're gonna pay that 10% penalty Plus whatever your tax bracket is. And let's say if you're in the 20% tax bracket, That's a 30% 30% penalty, you're going to face off the front. So I always tell people don't start saving for retirement until you can afford to save for retirement. If you don't have your emergency fund in place and you don't have enough money to get you through the next few weeks, then putting money aside for age 65 makes no sense. Right? So make sure you're thinking about that as well. So if you have old retirement plans from previous jobs or things of that nature, which most people do you want to make sure that you're consolidating those. So basically what that means is rolling them over. So if you have an old four oh one K from a previous job or 43 B or 44 57 retirement account, depending on where you used to work at, you can go to open up a retirement account or a rollover ira, at a bank of your choice, such as TD Ameritrade, uh, e trade Charles Schwab Scottrade, whoever you bank with Fidelity, whoever it may be. And roll those funds over. And the purpose of rolling these funds over is that now you have complete access to this money on your own. And it also gives you the ability to invest in more options than you typically could through your, through your employer's retirement plan. Now, when you roll this money over, don't roll it over to your checking account where a lot of people go wrong because like I said, you're gonna face all those penalties that we talk about. You could be losing minimum 10 maximum, probably 40% of the money that you're rolling over and you do not want to do that unless you're under extreme circumstances. So make sure that you're rolling this money over to a rollover ira and make sure that you're speaking with the financial professional and the company that you're rolling it over to to make sure that you have the process down and you're doing it right, so you're not facing penalties and losing and wasting tons of money now, how much do you need to retire? This is probably a question I get all the time like Dominic, how much do I need, how much do I need, what I ever be able to retire and the number can be kind of scary but I think it's very doable if you start early and if you start small and just start as soon as possible. So the first question that you want to ask yourself when you're trying to figure out how much you need to retire Is how do you want to live in retirement, what do you want your lifestyle to be? Is it you you know hanging out on the beach, you know kind of being a beach bum and just chilling paying $300 a month in rent in a hut, which is totally cool or is it staying or living in a big city such as New York or San Francisco, where the rent or your mortgage can be a little bit higher or are you looking to move away and leave the country and go to bali where expenses are lower all these things have a huge impact on what that magic number is going to be for your retirement, This is also why the earlier you start planning, if you're buying a home, you know, you have that 30 years to pay off your mortgage or 15 years or whatever it may be. By that, hopefully by the time you hit retirement you don't have those expenses. So your goal should be as you're preparing for retirement is making sure that you can work and get your expenses down lower and lower and lower as you get closer to retirement. And that is how a lot of people are able to retire early. Now when you're thinking about how much you're gonna need, I want you to first think about like I said what you want your lifestyle to be, but also think about how much money are you making now. Okay, now if you're making, let's say, I don't know 60 or $50, a year, let's just say, and you're spending that entire $50,000 a year and you don't see those expenses going away, That's about what you're gonna need in retirement. Okay, So if you're able to, let's say make 50,000, you're only spending 30,000. That's amazing. And getting into the habit of living within your means if you're a full time employee or entrepreneur, whatever it may be is going to be the key for you one building wealth, But to for you to ever be able to actually retire and stop working. So you want to look for that 70-90%. Okay, so 70-90% of your current income is how much you're going to need to, how much you're gonna need from your savings and your social Security to replace in retirement. Okay. So 70 to 90% of whatever you're currently making is what your savings and Social security, if that's still around, you're going to need to replace. So think about that number now, I'm gonna give you an exact calculation to determine what you're going to need a retirement. So as we mentioned earlier, Um you need to know your annual income need. I'm gonna start there. So your annual income need, so let's say in this situation it's gonna be $50,000. So let's say if you say, Hey Dominique, I know I'm gonna need at least $50,000 a year while I'm in retirement every single year. And this is a tricky one. So it's like, what's your expected, how many years do you think you're gonna be in retirement? Right. How many years do you think you'll be retired? So let's say you decide you want to retire at 50 you're like, hey most people, my family lived to 80 We'll just go with those numbers. So that's a 30 years that you're gonna need your retirement money to last year. So essentially you take 30 years By $50,000 a year, that's 1.5 million. That's your magic retirement number. So that means that for you to retire at 50 or whatever your specific time is, you need 1.5 million, which means that your savings account and your social security needs to be altogether equal about 1.5 million. So that you can live through your retirement without going completely broke. So this is the number that you need to look for now. Don't let this number completely freak you out. As I said earlier, when it comes to retirement and saving in general, it's all about starting small, starting early and living within your means and you'll be able to reach all of your financial goals and make yourself a priority and make your future a priority. The earlier you start saving the better trust me, the earlier you start saving the better.