Ask a Babe: How Do I Save for Retirement As An Entrepreneur?
Introducing "Ask A Babe," the #bossbabesATX advice column. We're kicking this off with valuable wisdom from investment advisor Sara Glakas on retirement savings for entrepreneurs and the self-employed. For those seeking future advice or for those looking to dispense it, please email firstname.lastname@example.org.
One of the biggest hurdles to finally taking the plunge and starting that business or going full-time freelance is an uncertain future—specifically an uncertain financial future.
The common wisdom is to save, save, save to both get through the lean times and to be prepared for any unforeseen circumstances that may arise.
But if we’re tucking away dollar bills for some future rainy day, how are we supposed to save enough for retirement, as well?
And while we’re on the subject, what should we be doing about retirement? Is there an option that’s ideal for entrepreneurs and the self-employed?
One of the best retirement options for entrepreneurs and self-employed freelancers is the Roth IRA.
From my experience, entrepreneurs tend to prioritize their emergency fund over their retirement account, especially when they are just starting out. Makes sense, right? If your business hits a slow patch, you need money available to ride it out.
But in finance, time is very valuable. If you put a dollar in the stock market today, it could be worth over $4 in fifteen years and it could be worth over $17 in thirty years. You need to start as many dollars as possible on their thirty-year journey.
For me, the Roth IRA is a great way to save for retirement while maintaining access to funds. The Roth has a special feature that allows you to put money aside for retirement, but with additional flexibility to withdraw your contributions if you really need to.
If you need to dip into your Roth before the official IRS retirement age of 59 ½ -- whether for an emergency, to pay expenses or to expand your business -- you have the option to take out your contributions (the money you put into the account) with no penalties or taxes. If you don’t ever need the money, you can keep it invested for retirement.
Individuals with annual income of less than $118,000 and married couples with annual income of less than $184,000 qualify to put up to $5,500 a year into a Roth IRA. If you’re over age 50, congrats, you can put in $6,500 a year.
It only takes about 15 minutes to open a Roth IRA and pick your investments. I recommend Vanguard as a great place to start. They do not charge account opening fees and their mutual funds have very low expenses. They’ll also pick up the phone if you need to call them.
If you don’t want to do it yourself, you need to hire an investment advisor to do it for you, just like you outsource other professional services for your business. Look for an advisor who is a fiduciary (someone who has the legal obligation to put your interests in front of their own).
The absolute, number one most important thing is to start. Don’t put it off another year. Every year that you lose is gone forever, and your future self could end up with much less money in retirement. Whether you DIY or outsource it to a professional, start your retirement preparation today.
Sara Glakas, of Black Barn Financial
[P.S. A Note from the #bossbabesATX: In addition to being a Registered Investment Advisor and fiduciary, Sara also runs Austin Women’s Investing Group, a Meet-up group for women who want to learn more about investing, stocks, and financial literacy. You can find her practice at blackbarnfinancial.com, or learn more about Austin Women’s Investing Group here.]