If you’re a business owner, you’re no stranger to taking on a variety of roles and responsibilities to keep your business moving forward. As you make important decisions for your company each day, you also understand it’s important to keep your sights on the road ahead. A common truth business owners know is that meeting your goals tomorrow can only happen with thoughtful planning today.
One smart decision a business owner can make is to start a workplace retirement plan. Establishing a plan, such as a SEP, SIMPLE IRA or individual 401(k), provides benefits for you, your employees and your company. When you contribute to the plan, you can take a tax deduction for your business. Of course, you’ll also be saving for your own retirement in a tax-deferred account.
Another smart piece of that decision is that you’re offering your employees a way to help them save for their own retirement. Making contributions for your employees’ retirement on behalf of the company lets you take additional business tax deductions. Furthermore, offering a retirement plan can set your business apart—helping you attract and retain great employees. A recent study* showed that just over one in 10 small business offers a retirement plan.
Employees Value Workplace Retirement Plans, But Regret Not Saving
Understanding how employees feel about saving for retirement has been an essential part in a series of research we’ve conducted over several years. According to our 2016 study, The Keys to the Kingdom, employees acknowledged they would be in far worse shape without access to a workplace retirement savings plan. In fact, to underscore how much they value them, the study showed eight in 10 participants viewed their workplace retirement savings plan as one of the most important benefits their employer offered.
Another theme from our research was that not saving for retirement is a source of regret for those getting closer to the golden years. More than half feel not saving enough is one of the greatest mistakes of their lives. Additionally, nine in 10 said it would be “at least somewhat important to tell their younger selves to save more.” However, about seven in 10 say their early career self would only be “somewhat, or very likely to listen” to that advice.
Invest Now to Avoid Regret Later
One of the best strategies for you and your employees is to start early. Investing now puts the benefit of time on your side, as illustrated in the hypothetical example below. Even though “Olivia” only put in one-third the amount of money that “Zack” did, she still has more in her account at age 65. That’s the power of starting early and giving your investments time to grow.
How did Olivia invest less but make more?
By giving her investments time to grow
|Began investing||Age 25||Age 35|
|Years of investing $1,000||10||30|
|Total amount invested||$10,000||$30,000|
|Assumed annual return||8%||8%|
|Account value at age 65||$157,430||$122,346|
Hypothetical example.** Source: American Century Investments. This example is for illustration purposes only and does not represent any specific investment product.
We’re Committed to You and Your Business
As you consider your plans for the future of your business, keep your retirement and the retirement of your employees in mind. We’re here to help you and your employees with your retirement goals.
Learn about the plans we offer or call a Business Retirement Specialist today at 1-800-345-3533.
*13% of small employers offer a retirement plan. Capital One’s Spark Business Barometer, 2016.
**This hypothetical calculation assumes reinvestment of all realized gains, dividends, and interest receipts and does not account for the effects of any added fees, expenses, or taxes that might be incurred. If all taxes, fees, and expenses were reflected in the calculation, reported portfolio values would be lower. It also assumes you do not withdrawal investment earnings or make any additional contributions.
IRA investment earnings are not taxed. Depending on the type of IRA and certain other factors, these earnings, as well as the original contributions, may be taxed at your ordinary income tax rate upon withdrawal. A 10% penalty may be imposed for early withdrawal before age 59 ½.