Don’t Neglect That 401-K… In Your Business!

Many of you are being negligent.  You are neglecting the 401-K… in your business.  A 401-K is a retirement investment allowed by tax law that helps you build up funds for retirement.  And although technically your business is not a real 401-K, if handled right, it can pay off much better than any 401-K put together by all the financial gurus of all the investment houses!

To see why this is important, consider this table. It shows the life expectancy of adults in the United States:

Find your current age in the first column and then your sex.  The answer is how many more years a typical male (or female) at that age will live. Of course, your actual mileage may vary.

Now, combine that information with this:

This table shows how long an investment will last as you draw it down.  For instance, if you have an investment at a 10% rate of return and withdraw 12% of it a year, it will last 19 years.  If you withdraw only 8% of it, it will never be depleted.

The question is, how much will you need for retirement?  A liberal guideline suggests that you will need 75% of your present monthly income upon retirement, while a conservative one (allowing for more health care and/or assisted living) suggests 100%.  Suppose you are a male, age 45, and that you are on track to have $300,000 saved by the time you retire in 20 years.  Also, suppose your cost of living presently is $5,000 per month.  Will you be ok?

At 45, you have a good chance to live to age 77.8, so you’ll need retirement income for 12.8 years.  Let’s say your nest egg is earning 8% interest by then (I am being optimistic for this economy, but it WILL come back some day!).  Looking at Table 2, we need to find a 13 somewhere in the 8% column. We find a 14 which is on the 12% withdrawal line.  So, we take 12% of $300,000 and get $36,000 a year, which is $3,000 a month, well short of what you think you’ll need.  You either need to save like mad over the next 20 years, or find some way to build the value of your investments as rapidly as possible.

Wait!  Isn’t your business your biggest investment?