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How to Save for Retirement Based on Income Level: The Top Tips

If you run a small business, you probably dream of saving for retirement. You have worked hard to provide your family with a nice life, but you want to make sure that you get the most out of your golden years. Therefore, you might be wondering how to save for retirement based on your income level.

Saving for retirement may feel like a distant challenge, but the earlier you start saving, the easier it will be. How can you save for retirement based on your income level? Take a look at a few important points below, and start saving for retirement.


The First Factors To Consider

Figuring out how much money to save for retirement can be difficult because there are a lot of factors to consider. The more money you make, the more money you should be able to save; however, it is not that simple.

As an independent business owner, the large factors you need to consider include:

  • Your Life Expectancy: You need to think about your life expectancy. How long do you think you will live? One of the most common concerns people have is outliving their money. To figure out your life expectancy, you may want to take a look at relatives in your family to see how long they live. You also need to take your own physical health into account.
  • Your Current Spending Requirements: You also need to consider your current spending requirements. The more money you have to spend, the less money you can save. While reigning in your discretionary spending is a nice start, not all of your spending is discretionary. For example, you need to put food on the table, pay your utility bills, and cover your housing expenses. How much money do you have to spend every month?
  • Your Preferred Lifestyle in Retirement: Finally, you need to think about how much money you will spend in retirement. What does your retirement look like? For example, if you plan on traveling the world, you might spend more money every year than someone who prefers to stay at home. Do not forget to think about how income might eat away at your purchasing power over time.
  • Your Retirement Age: Finally, you need to think about your retirement age. How long do you plan on working? The earlier you retire, the longer your retirement savings will have to last.

After thinking about these general factors, you should be able to have an estimate of how much money you might have to save to retire. There are several guidelines to follow when establishing your savings plan.


Getting Started at a Low-Income Level

When you first open your insurance business, you may feel like you don’t have enough money to start saving for retirement. On the other hand, remember that compound interest is your friend when you start your business. The more years your retirement savings have to compound, the more that money will be worth when you get older.

What this means is that a dollar you save today is going to be worth more when you retire than a dollar that you save 10 years from now. Even saving a small amount of money can help you reach your retirement goal faster.

If you are at a low-income level right now, you may want to start by putting away 10 percent of your pre-tax monthly income for retirement. Try to save this money before you spend anything else. You might even want to set up an auto-draft so that 10 percent of your income is pulled out before you see it. If you don’t see it in your account, you will be less likely to spend it.


Saving at a Moderate Income Level

As your business grows, your income should go up as well. Once you feel more comfortable with your insurance business, you may want to start saving 15 percent of your pre-tax income. The closer you get to retirement, the more money you will have to put away. For example, you might want to think about opening an IRA. An IRA can act as a tax shield, allowing you to keep more of your hard-earned money.

Some of the other tips to keep in mind include:

  • Consider choosing a self-directed IRA that can minimize expenses associated with your retirement plan.
  • Think about your risk tolerance. If you can’t handle the risk associated with volatile investments, stay away from them.
  • Think about saving your raise. What this means is that you may put away more money if you make more money than you expect.

You might even want to reach out to an accountant who can help you identify other tax deductions you can claim. That way, you can pay less in taxes and save more money for retirement.


Saving for Retirement at a High-Income Level

After working hard for many years, your business will probably have grown to a large size. Now, it is time to start thinking about putting 20 percent of your income away for retirement. Even though this sounds like a lot, your other expenses may have stayed the same even as your business grew. Therefore, you should have more money to put away.

For example, you might want to take advantage of catch-up contributions. By this point, you might be over the age of 50, which means you might be able to put extra money into your IRA every year. That might mean you can pay less money in taxes, which should free up even more money to put into your retirement.


As You Get Close To Retirement Age

When you feel like you are getting close to your retirement age, it might be time to change some of your investments. Even though you should be putting away money to save for retirement, it might be time for you to start pulling out some of your riskier investments, transitioning them into investments that are less risky. You will need that money to be there soon, and you don’t want the value of your retirement account to drop because the stock market took a dive.

For example, you may want to move some money from stocks to bonds and mutual funds. That can help you keep more of the money you have saved for retirement. Do not hesitate to reach out to a financial advisor that can help you manage your retirement accounts based on your target retirement date.


Join the American Agents Alliance for More Resources

Even though saving for retirement might feel like an impossible challenge, the earlier you start saving, the easier it will be. There are plenty of strategies you can follow to save for retirement, but you need to customize them to meet your specific needs. We are the American Agents Alliance, and we would be happy to share resources that can help you run a successful insurance agency.

The American Agents Alliance has been empowering independent agents and brokers to thrive through advocacy, education, and networking since 1962. We provide timely resources, valuable member discounts, and access to our vast network of agents and brokers across the country.

Become a member today to see how we can help you succeed.

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