Entrepreneurs Still At Risk
In a 2009 CAIM newsletter called: “Entrepreneurs At Risk,”
we highlighted the fact that too many entrepreneurs fail to adequately save for retirement.
Headlines at that time blared some scary stats: “Almost 19 million people are running micro-businesses in the U.S. but one in three have nothing saved for retirement.” The Clark Howard Show 2005. And: “Only 6 percent of those who work by themselves have a 401(k) plan. Meanwhile, more than half of all business owners polled (55 percent) said they never plan to retire, and a shocking number, 62 percent, have no exit plan at all.” AllBusiness.com 2007
“Sixty percent of small business owners surveyed by American Express say they’re not on track to save the money they need for retirement. Seventy-three percent said they’re worried about their ability to save for the lifestyle they want in retirement.”
One reason entrepreneurs may be reluctant to save money for their retirement is because of an erroneous belief. They think that if they save, but need access to that money, they will not be able to touch it. So instead of investing, they hold onto any cash and/or plow it back into the business. While randomly pulling out money whenever you need it is obviously not a good idea, to not save for the above stated reason is really doing yourself a disservice.
The fact is, if you open retirement investment accounts, there are a number of ways to access these funds, penalty-free, should an emergency arise. Here are a few options from a 2012 online article: “9 Penalty-Free IRA Withdrawals”
1. Un-reimbursed Medical Expenses: If you do not have health insurance or your medical expenses are more than your insurance will cover for the year, you may be able to take penalty-free distributions from your IRA to cover these expenses.
2. Disability: If a physician determines that, because of a mental or physical disability, you are unable to engage in any gainful employment, you are allowed to take penalty-free distributions from your IRA.
3. Higher-Education Expenses:If you need to pay expenses for higher education for you, your spouse or your children or grandchildren – you may be able to take penalty-free distributions to do so.
4. Home Purchases: If you are purchasing, building or rebuilding a first home, the IRS allows you a penalty-free distribution of up to $10,000 to use toward your expenses, including closing costs.
The article does add the caveat that even though amounts distributed for the above reasons are exempt from the early-distribution penalty, they may still be subject to federal and state tax. So check with your tax professional to determine what amounts may be taxable.
The most important advice, when it comes to your future security, is to make sure you save for retirement before anything else.