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Exit Strategy Your Retirement Plan

According to a survey conducted by the Freelancer’s Union, 57.3 million Americans, 36% of the working population, were self-employed in 2017. The self-employed receive no employer-sponsored benefits, unless they themselves become employers and hire full-time workers, making employers and employees eligible for sponsored benefits.

Otherwise, the self-employed receive no paid sick, holiday, or vacation time and no employer co-sponsored health insurance or retirement benefits. Along with the self-employed are millions who work part-time in traditional employment and likewise receive no employer-sponsored benefits.

Let’s consider retirement, one of two benefits that workers may self-fund (along with health insurance). If finances allow you to set aside money to live on when you’re too old to work, you’d be wise to do so.

Examine your spending patterns. What are you spending on items that you want, but don’t need? I don’t recommend that you deny yourself all gratification—we deserve little luxuries every now and again—but some spending might perhaps be trimmed and those funds redirected to savings.

Budgeting a limited income is difficult. Even full-time workers under-fund their retirement accounts, despite the matching contributions. Wages have stagnated for 30 years and living expenses only increase. Many are unable to accumulate savings. Some apply what they’re able to save toward buying a home, rather than retirement. They take a different view of long-range financial planning.

According to the Economic Policy Institute, the mean retirement savings for Americans age 55 – 61 was $163,577 in 2017. Social Security payments help, but on average cover only 40% of monthly expenses. As of December 31, 2017, the average monthly payout for retirees age 62 is $1,112; retirees age 66 receive $1,383; and at age 66, retirees receive $1,578.

The retirement picture in the U.S. is a looming national emergency and a national embarrassment. Corporate governance laws enacted during the administrations of Reagan, Clinton and Bush (son) brought us globalization and the transfer of well-paying jobs to other countries and by so doing created the crisis. The ability of many citizens to earn a comfortable living through employment in benefits paying jobs has been destroyed.

The computer age has done no favors, either. So now you can play with Snapchat on your Android while on break at your $12/hour job. There is technology that’s advanced many fields. But are those advances worth the livelihood of millions? That’s a question for the ethicists.

If possible, please start a retirement account. Here are two options for Solopreneurs and part-time employees:

myRA is a starter retirement account created by the Treasury Department. There’s no charge to open an account and you decide how much to contribute each month. Automatic withdrawal contributions can be done through your bank account or paycheck.

If you change jobs, your myRA account isn’t affected. If you withdraw money from the account, there is no financial penalty. myRA is funded with after-tax income. The maximum annual myRA contribution is $5500 and $6500 for those age 50 or older. The maximum amount that can be held in a myRA is $15,000. Once the $15,000 limit has been reached (or before, for that matter), the balance can be rolled over into a traditional retirement account. https://myra.gov

Self-employed 401(k) profit sharing-plan (Solo 401[k]) is funded with pre-tax dollars. You can make contributions as both an employer (because you employ yourself) and as an employee (because you are employed by your sole proprietorship or single person LLC entity). Wearing your employer hat, one contribution can be up to 25% of annual net profit, or $33,000 ($39,000 if 50 years or older) per year. A second contribution of maximum $18,000 annually ($24,000 annually for those 50 years and older) can be made while wearing your employee hat.

Better still, it’s possible to hire your spouse as an employee under this plan and s/he can contribute in the same way as you do, meaning that your spouse can also contribute up to $53,000 ($59,000 if age 50 years or older) per year. Open your Solo 401(k) account before December 31 and make a tax-deductible contribution this year.

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