Entrepreneurs and small business owners need to be proactive about researching and planning for retirement. As entrepreneurs, we often spend time tending to business at hand and neglect to consider what will happen financially after we retire. Many do not have a fixed income, so preparing for the future can be tricky. Here are things you should take a look at now.
Cost of Living
What will you need to live comfortably when you retire? Housing costs differ widely depending on the location and size of your house or apartment. The average cost of housing, whether that be mortgage and taxes or rent, is approximately $1,100 per month. Utilities will generally run you $150 per month, with internet, television, and phone being potentially an additional $180 per month. Food costs are estimated by the Supplemental Nutrition Assistance Program to be approximately $195 per adult each month.
With all of this in mind, your basic living costs could be $1,625 a month. That equals $19,500 annually.
Once you have transitioned to Medicare from private health care, you could be looking at $650 monthly in premiums for Parts A, B, C, and D. If you have some serious health conditions, that figure could double to cover things that Medicare doesn’t. A good rule of thumb is to count on spending $12,000 annually for healthcare.
It is unreasonable to expect you not to engage with friends and family, eat out on occasion, go to the gym, travel, or shop for clothing and accessories. That would not be a healthy existence. There will be plenty of things you can do for free as a senior, including taking advantage of local transportation services. It is a good idea to allow yourself at least $50 per month for non-essential living expenses. That is $6,000 a year for fun and emergencies.
Now you know the cost of living may run you $3,125 per month or $37,500 each year. Where is that going to come from? Social Security alone probably isn’t going to cover that, if it will even be available when you retire. Depending on when you start taking SS, you might receive anywhere from $800 to $2,400 per month before Medicare and taxes are taken out.
Don’t count on Social Security as your primary source of income. Savings, such as an IRA, will be needed to supplement SS income if you are to have a quality life in retirement. Count on needing approximately $1,500 per month from savings or a part-time job.
Some Final Thoughts
When you consider all of the above, it makes sense to start planning for retirement as early as possible in your career. Take stock of your current situation and finances to see if you will even be able to afford to retire. If the future looks bleak, rethink your business and employment status. It is never too late to switch gears and either restructure the focus of your business, find employment with a salary and benefits, or take on some part-time work. Most of all, take the best care of yourself mentally and physically so that you can handle the potential challenges of retiring.