Getting On Track

• Accumulate retirement wealth. Nelson advises White to “increase systematic savings toward her 401(k) plan from 5% to at least 10% of her income. Her current employer is matching 25% of her income up to $5,000 per year,” explains Nelson, who estimates that if White increases to 10% of her income, or $5,000, immediately and maintains this contribution for the next 19 years, she will have an additional $132,200 in her 401(k) account when she turns 60. He adds that if White doesn’t do this and just puts this investment toward her business, she will put herself at greater risk. “With a business, you are at 100% risk. With a retirement account, you have an average return of 7% to 10% with certainty that you will accumulate,” estimates Nelson. For her age, length of time working, salary history, and assuming an 8% average return, she should have more than $187,000 in retirement funds versus the almost $44,000 she has now.

Nelson says the second part of White’s retirement financing strategy is to consolidate. He recommends she roll her former employer-sponsored plans into an IRA and collapse her multiple checking accounts into one retirement vehicle.

• Don’t commingle assets. When—or if—White is ready to reopen her business, she needs to keep her business finances separate from her personal accounts. “She must set aside money for retirement as a personal asset and not borrow from it for other purposes,” emphasizes Nelson. Additionally, he says, “You have to protect yourself. If you put all of your assets in your business, what’s the backup?”     

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