Dreams are powerful. They capture your imagination, motivate you and cause you to plan.
When it comes to retirement and entrepreneurship, those dreams may, at first, seem to be in conflict. But, in fact, they are not.
If you long to leave the corporate world and start your own business, you may think your plans for retirement need to take a back seat. Not true! In fact, it is completely possible to use your existing retirement savings to finance your entrepreneurial dreams, while continuing to save for the “golden years.”
To start, here are some assumptions. Many calculators estimate that workers will need between 10.5 times and 12 times their final annual salary. That means the worker making $60,000 annually will need $630,000 to $720,000 in retirement to maintain his or her existing standard of living.
Financial planners think about what is needed via two basic figures. The first is the income you will earn through your retirement account. The second is the income earned through Social Security. The rate at which your retirement replaces any drawdowns with new earnings helps to keep a secure and steady rate of income for your retirement years.
Retirement and Entrepreneurs
Sound financial planning is important for anyone, but especially for entrepreneurs. Here are a few tips entrepreneurs should follow when thinking about retirement savings:
Keep Assets Separate. You need to divide and conquer. As an entrepreneur, you should have separate financial accounts (credit cards, bank accounts) that track your financials and performance. This is helpful both for peace of mind, but also when it is time to complete taxes or file for business loans.
Plan Ahead. Setting aside three to six months of income is helpful to deal with life’s unexpected financial obligations. This cushion fund is great to have to provide a buffer in case of surprises. It is also helpful to have when you start your new business and may be waiting for customer income to start arriving. Once the cushion fund is fully financed, begin building an emergency fund, just in case.
Build Budget Flexibility. Your household’s income may not be completely consistent when you first start your own business. That is why it is important to take a close look at your monthly expenses and see where there might be some flexibility. That way, during a slow month, you will know where you can temporarily tighten the belt.
Create an Automated Savings Habit. You want to make sure you regularly contribute to your retirement funds. Take a look at your savings over a period of time, say, 12 months, and calculate the average monthly savings. Make that your baseline for how much you will contribute every month to your retirement savings.
Financing Your Dream
Your existing retirement funds can help you fulfill your dreams of business ownership, and still allow you to plan for the future. With the right advisors and corporate structure, you can use your existing 401(k) savings to provide you with the startup funding you need. How can your retirement make those dreams a reality?
It starts with creating a C corporation for your business. Once the business corporation is established, you can set up a retirement plan for the new business and roll over your existing 401(k). Those funds can then be used to finance the business.
As opposed to waiting for loan decisions and federal programs, this structure allows you to access your money in a matter of weeks.
At Benetrends, we have worked with thousands of clients to help make their dreams come true. In addition to the legal and financial advice that allows for the proper business structure, we stand with our customers. We provide many other services, including retirement plan administration, credit card processing, and insurance solutions.
To learn how Benetrends can help you leverage your retirement account and build future wealth with 401(k) business funding, schedule a consultation with one of our skilled consultants today.