Behind retirement savings? A bad market can be a good time to invest

Small business owners are among the Americans most likely to lag behind in retirement savings. Investing back in business is more often a priority for entrepreneurs with excess cash than investing in long-term deferred tax retirement. Kovid didn’t help.

Amid the pandemic, dozens of small business owners in America have stopped or reduced their retirement savings, according to investment experts and retirement experts, driven by rising labor and raw material costs or, at worst, facing business closures.

Of course, the pandemic did not affect every small business in terms of retirement planning. Thirty-seven percent of small business owners say they aren’t sure they’re saving enough for retirement, according to a March survey of ShareBuilder 401k among 500 small businesses. But this is slightly lower than 44% who said two years earlier that they were unsure of their ability to save for retirement.

Some data show that at least on the margins, the savings rates of small business owners reflect the impact of all Americans during the pandemic. In 2019, the average monthly amount that active participants contributed to their 401 (k) plan with Guideline, a small business retirement platform, was $ 646. That rose to $ 783 in 2021, according to the company. For its part, Vanguard noted that participation rates among small businesses rose to 73% in 2020 from 72% a year earlier, and deferral rates – the share of employee salaries that contributed to retirement – rose to 7%. 3% in 2020, compared to 7.1% in 2019.

But these results generally do not reflect the experience of many of the country’s smallest companies – including those in particularly hard-hit industries. Many of these companies have lagged even further behind in their retirement savings targets in recent years for a variety of reasons and need a quick start, according to financial experts. Combined with the fact that many homeowners have never saved for retirement, recent market turnovers could be a good time to consider throwing away money or more money for retirement.

Here are some ideas on how to fill the gap.

1. Invest at least 10% of your retirement income, if you can

In general, investment experts suggest saving 10% to 15% of your annual income for a 40-year career – just to maintain the same standard of living in retirement, said Stuart Robertson, CEO of ShareBuilder 401k. However, a survey in March found that only 38% of companies surveyed saved 10% or more. Meanwhile, 24% said they are not currently contributing.

2. Reduce your budget and refocus on savings

David Peters, founder and owner of Peters Tax Preparation & Consulting in Richmond, Virginia, tells business owners to look closely at their budgets, paying close attention to where they spend their money and looking for ways to reduce it. For example, they may be able to work from home and save on gas or cut out unnecessary luxury items. “A smart move would be to reduce some of the running costs so you can continue to save for long-term goals,” he said.

3. Increase the risk of the investment portfolio

Another option for those who are already saving may be to take more investment risk while cutting costs, as the case may be. “If you increase your distribution so that you get two or three percentage points higher rate of return, and reduce your costs by 2% to 3% and add the power of combining, it can be very powerful for returns,” said Timothy. Spice, tax partner in the Personal Wealth Advisors Group at EisnerAmper LLP in New York.

This may seem like a difficult pill to swallow against the backdrop of recent market instability, but for small business owners who currently have the money, they may be able to take advantage of some funds that could be underestimated. “People are afraid to save when they see red numbers showing up every day,” Peters said, “but because of market fluctuations, there may be opportunities they wouldn’t otherwise have.”

As Dan Wiener, who heads independent avant-garde investor adviser, recently told CNBC’s Bob Pisani that when the S&P 500 falls more than 3.5 percent in a day or a series of days, they are more likely to buy opportunities. Between June 1983 and the end of March 2022, this happened 65 times and led to an average return of 25.6% the following year. “Buying in these big one-day price declines has been profitable more often than not if you’re only ready to watch for a year,” he said.

4. Create a plan and stick to it

While some small business owners may be worried that the market will fall further, retirement experts say things tend to catch up with the times when owners regularly contribute to their retirement. The main motivation should not be to choose the best days, but to create a long-term savings plan and stick to it.

Only by contributing regularly do investors benefit from averaging their costs in dollars, which means they don’t always buy at a high or low price, said Kevin Busk, CEO and co-founder of Guideline. “When you set it up and forget it, you don’t have to worry about market time.”

Robertson offers the example of an investor who constantly buys a fund for $ 500 during a high market, a low market and a recovering market. First, the investor buys five shares of $ 100 each. He then bought 10 shares for $ 50 each and finally bought 6.67 shares for $ 75 each. Its total cost is about $ 1,500, and the average share price of the fund is $ 75. Still, the total market value for his 21.67 shares is $ 1625.25, so he is ahead, although he bought some shares at a market peak and others at a market low.

“They can save in any way; the important thing is that they do, “Robertson said.

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