Maximizing Retirement: Beyond Traditional Accounts

Let's have a real talk about retirement. I'm not here to give you the same old advice you've heard a million times. Instead, I want to share some fresh perspectives and practical tips that can turbocharge your retirement savings. So, before we dive in, let's get one thing straight: What does retirement really mean?

For most folks, retirement feels like this distant point on the horizon. We hustle through our working years, hoping that if we play our cards right, we'll be able to enjoy life without financial stress when we retire. Traditionally, that retirement timeline stretches out for about 30 to 40 years.

But here's where it gets interesting for business owners like many of us. Our retirement timeline is often much shorter, more like 10 to 15 years. We're not just daydreaming about lounging on a beach for decades; we're looking at a shorter sprint to financial freedom.

In fact, a study we conducted among business owners from various industries found that, on average, it takes them about 7.91 years to reach that point of financial freedom. What does financial freedom mean here? Well, it's not necessarily sipping cocktails by the pool all day. It means earning enough income to ease up on work, possibly sell the business, or transition to a more passive role.

Now, let's explore some strategies to supercharge your retirement savings:

1. Traditional Retirement Accounts:

Think of these as the slow and steady option. Traditional retirement accounts like IRAs and 401(k)s are safe bets with lower returns. They're hassle-free but demand a long-term commitment of 30 to 40 years. As business owners, we often see them as safety nets or a way to diversify.

2. IRA (Individual Retirement Account):

This one's pretty accessible to everyone. You can put in roughly $7,000 per year. If that number works for you, stick with an IRA.

3. SEP IRA (Simplified Employee Pension IRA):

For self-employed individuals or small business owners, the SEP IRA is handy. It allows contributions up to 25% of your self-employment earnings, with catch-up options for higher limits.

4. SIMPLE IRA (Savings Incentive Match Plan for Employees):

Designed for businesses with employees, SIMPLE IRAs offer matching contributions up to 3% of employee salaries. They're okay but often not the best for maximizing retirement savings.

5. Solo 401(k):

This is the go-to choice for solo business owners. It's flexible, with higher contribution limits, and you can adjust your contributions every year. Perfect for those aiming to maximize their retirement nest egg.

6. Defined Benefit Plans:

These are a bit heavyweight and expensive, typically best for those willing to contribute over $100,000 annually. They help you surpass the $60,000 to $70,000 contribution limit but come with added complexity.

Now, let's shift gears and talk about investments beyond traditional accounts.

Real Estate and Passive Investments:

These are the secret weapons in retirement planning. They offer three key advantages:

Expertise: If you know your stuff, you can earn great returns. Whether it's real estate or other investments, expertise pays off big time.

Control: With passive investments, you call the shots. You're not at the mercy of a fund manager. It's your portfolio, your decisions.

Leverage: Investments like real estate allow you to leverage other people's time and money, amplifying your returns.

But here's a critical point: Passive losses from these investments might not offset your ordinary income unless you plan smartly to align your income streams.

Lastly, let's talk about your business's value in the retirement equation. There are two ways to look at it:

1. Sale of Business: What's your business worth if you decide to sell it? This can be a significant retirement asset.

2. Passive Income: Can you make your business a source of passive income? Imagine being able to retire from the daily grind but still collect income from your business. It's possible.

In both cases, the key is making your business self-sufficient and bigger than you. It's not a simple checkbox; it's a spectrum. How long can your business thrive without your constant attention?

In the end, retirement is not just about traditional accounts; it's about smart investments, leveraging your expertise, taking control, and aligning your income streams. And don't forget about your business's value in the retirement game. Whether you're already retired or planning for the future, remember, retirement is about more than just financial security—it's about living life on your terms.

Make sure you join next week's live training, Bookkeeping Basics for Small Businesses!