Overdrive Magazine | Trucking Business News & Owner Operator Info
Issue link: http://read.dmtmag.com/i/165354
Saving for retirement It's never too late to start a plan that yields good dividends A s your business gets established and you can predict decent earnings on a regular basis, don't procrastinate establishing a long-term personal savings plan. Work a weekly or monthly savings contribution, however modest, into your budget. A U.S. Department of Labor study found that Social Security will replace only about 40 percent of pre-retirement income for the average American. Yet experts say that after you retire, you'll need about 70 percent of the income you earned before retirement to maintain your lifestyle. At that rate, a trucker who earns $60,000 annually will need about $42,000 a year after he retires. The sooner you begin saving for retirement, the better, even if it's only $25 a week. The biggest reason to start saving early is that invested money compounds, and the results are amazing over many years. If a 25-year-old puts $400 into a retirement fund every month until he reaches age 65, and his money grows 10 percent a year, he will retire with almost $2.5 million. If a 35-year-old invests the same amount each month and earns 10 percent, he will have a little more than $900,000 at age 65. That's a difference of $1.6 million. The most common excuse cited by nonsaving owner-operators is that setting money aside is too difficult. Yet average owner-operators have a net income of $50,000 or more, according to Overdrive research, so the discipline to control spending is a major key to setting aside money for retirement. QUALIFIED RETIREMENT PLANS When you make investments that are not part of a retirement program, you'll pay taxes on earnings, such as interest from a savings account or profit from a stock sale. With qualified retirement accounts, you don't pay a penny in taxes on the earnings until you retire and begin withdrawing money. Not only are taxes delayed for many years, but by then, you should be in a lower tax bracket, so you'll pay less in taxes. In addition, most retirement plans allow you to deduct contributions from your reported income. That means if you make $40,000 and contribute $2,000 to a qualified plan, you report only $38,000 on your income tax This excerpt is from the 2013 Partreturn. ners in Business manual, produced The most popular qualified by Overdrive and owner-operator plans for owner-operators are financial services provider ATBS. To order a manual and for additional Individual Retirement Accounts. information, visit PIBlive.com. The IRA contributions can be put program is sponsored by Firestone, into certificates of deposit, Ryder Vehicle Sales and Shell Rotella. money-market accounts, savings accounts, mutual funds, stocks, bonds and U.S. Treasury securities. A banker, stockbroker or mutual fund company can get you the paperwork and help you choose one or more investments to make up the IRA. The higher the risk, the higher the potential rate of return. Most advisers agree that younger investors can take more risk because over time, if they invest regularly, they will gain more in the market peaks than they'll lose in the valleys. You have to decide how much risk you can handle at each stage of your life. PLANS FOR THE SELF-EMPLOYED Retirement plans with varying regulations are available for self-employed people. If you're not sure about committing money to a certain type of investment, check with your accountant or a financial adviser. Some of these apply primarily to independents who employ one or more drivers. TRADITIONAL IRA. You are allowed to contribute $5,500 a year, tax-deferred, to an IRA, through tax year 2013 with a catch-up contribution limit of $1,000 for individuals age 50 and older. As long as you're not covered by an employer-sponsored retirement plan, all contributions to an IRA reduce your taxable income and are tax-deferred. If you or your spouse contributes to an employer-sponsored plan such as a 401(k), only a portion of your contribution to an IRA is deductible. When you put your money in an IRA, you cannot withdraw it before age 59.5 52 | Overdrive | September 2013 PIB_0913.indd 52 8/29/13 7:28 AM