AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

Hello Scott,

 I've been reading your columns for years. It seems that most of the time, you write about people who 1) have a regular steady salary; 2) have a defined benefit plan or 401k or whatever; and 3) can count on continuing in their present job until they choose to retire at the company and social security retirement age.

 But there are a lot of us who aren't in those categories. We are self-employed, we try our best to put some money aside for retirement but of course there is never enough...and when we read your columns, we feel left out (or at least *I* do). What advice do you have for the fairly large group of us who don't have a company-sponsored plan to rely upon?

ditto mmcgown i just started my own business 3 months ago and said good bye to 1, 2 & 3 from your first paragraph.  i took my 401 from my previous employer and rolled it into an account under my control but that is about it as far as long term planning.  i went out on my own because i saw the opportunity to make a pretty good living for my family, but now (as the proceeds slooooowly roll in) i am wondering what to do with it?  what are the options for a small business owner? 

we don't have any employees except for my partner and myself.  i am 31 years old and we just had a baby and my wife is not going back to work.  i have a roth IRA that i fund every year and some equities with a Raymond James branch.  any advice would be helpful.

ps--Scot i hope you enjoyed York Street.

I think it is safe to say that the age of the corporate pension is over. Between PBGC premiums, accounting rules, and uncertain liabilities every corporation that can cap its pension plan will do so, if they haven't already. So if you are 30 or 40, you're really on your own.

Most of the people who write to me seem to be in their 50s. There is a good reason for this. That's the age when you get really concerned about retirement. It's also the first time, for many, that tuition payments and other costs don't pre-empt most of the savings dollars. So it's also the first time that people have financial assets that amount to much. Before then, the most valuable thing in your life is your ability to work: it dwarfs everything else.

Today, we're moving rapidly to the "Free Agent Nation" that Daniel Pink described in the book by that title. That means we have to plan for our own retirement. Fortunately, there are some very nice vehicles available, such as SEP-IRA plans. These allow you to put away, tax-deferred, as much as 401(k) and 403(b) plans. And you can make the choice of which platform you use--- Vanguard, Fidelity, Schwab, TD Ameritrade, etc.--- so you can make low cost decisions about how the money is to be invested.

The next best vehicle is the home you live in. As a self-employed person you have a good deal more control over where you live and how long you live there. You should use that to advantage and make careful plans to pay down mortgage debt. Accelerated payments are a good way to use year-end bonus money when you have a good year. Also, by paying down the mortgage rapidly you can maximize the availability of low cost credit via a home equity credit line (HECL). These currently have interest rates under 5 percent, far better than most business loan rates and easily exercised. You can have a credit line up to $100,000 and the interest will be tax deductible regardless of how the funds are used. So they are great tools for financing a small business.

Some of the money that you accumulate in your SEP-IRA can be used to buy a life annuity when you finally retire so you will be in a good position to have retirement income from multiple sources: Social Security, SEP-IRA, life annuity, and the invisible income of debt-free home ownership.

 Scott