How can you save for retirement if you own your own business or make money from home?

Question

I am 22.I will soon be making money on my own working from home. I don't know anything about retirement. How much money should I save and what should I put this money into, a CD,a bond? I have no idea about these things. Also, does anyone know at what rate the cost of living rises each year? Is there an equation to determine how much money will be needed for me to retire when I get ready to?

Answer 1

I agree with the Roth IRA. The concept of "pay yourself first" is a great one to learn early!

Also, being young allows you to take more risk as in going for a higher return but with greater variation in annual return. Off the top of my head, stocks earn 10%, bonds 7% and CDs 3% over a long horizon like 30 years. Over short periods stocks and bonds can show negative returns like the stock market downturn early 2000's.

The key is to diversify. As in buying a combination of stocks bonds and cds. That way if one goes down the others will mitigate the loss.

Starting out you can get these three in a no commission mutual fund. As an example check out the Dodge&Cox Balanced Fund. There the manager does the diversification for you.

Mutual funds can be bought inside your Roth IRA. Be careful who you setup your account with and get no-load funds so you are not paying big fees and commissions. Check out Morningstar.com for mutual funds. I would recommend checking out the Rich Dad series of books too.

Answer 2

You would open an IRA through a company such as Vangaurd (which has lower fees). CD's are good right now, though they tie up your $ for set amounts of time.

The link below has some great information. I'd also suggest contacting a financial planner (one that takes a set fee, but not commission on what he/she sells you) to discuss your short term and long term goals. They generally charge about $100.

Kudo's to you & remember "compounding interest" is your best friend in the world of investing. The earlier you start the better. Even if you are only putting in $20 a month. Something is better than nothing. Though, with the tax breaks on IRA's & the limit having been raised & raised again in a few years throw as much $ as you can at your IRA.

+ the link below has a retirement calculator for you to play with.

Here is information about how & why the cost of living rises to help you understand how to calculate it.

Answer 3

A Roth IRA would be good for you to start with. You put money into it after-tax, but all your earnings on it are tax-free. Since you are so young, you will have plenty of time to build up interest before you retire. There are limits to how much you can contribute each year (I think it is currently about$4k-$5k at the moment). If you can afford to do the max, do it, because it will mean that much more interest later on.
CD's are good if you want to invest a set amount of money for a short period (6months to a couple years)of time. You always know how much you will make and when you will get it back because they are fixed-interest rate and a fixed time period.
Go to your bank and talk to a financial advisor there, they can explain the options and get you set up.
Good for you for starting to plan for your future now! If your like this with everything, I'm sure your business will be a sucess.

Answer 4

VERY simple, put your money in diversified account or technics and FORGET about that money! Don't risk and don't be too conservative. You wont have any problem if you start young.

Another thing, if it's your business, what would happen if something happen to you? How the money will get in if you cannot work some period of time? You might look into that also if not 1st.

Good luck!

P.S. A person who work with commision it is good. Depend on the size of the CIE. But with a Bank you should have good service.

Answer 5

Owning your own business is terrific and offers many deductions at tax time. Check into a simple I.R.A. which you contribute to monthly out of the business.

Saving for your own retirement is NOW NECESSITY !!! You must not over look this !! If you cut your self short at the end of the month due to contributing to the I.R.A. you will then need to work harder or get a second job ! But contributing to the I.R.A. should be your first priority after of course getting the business up and running!

Any financial planner can set one up for you and there are hundreds to choose from! Good Luck !!! : )

Answer 6

You need to set aside a bit of your income (called paying yourself) for retirement. IRA's are a good bet. There are two sources for you. The first is www.vanguard.com where you can calculate the retirement you'll need. It's a very good, low cost, investor friendly company. The other resource is www.investopedia.com where you can research various investment possibilities.
BTW, there are two banks offering online "passbook" accounts that pay over 5 per cent which is as good or better than most CDs. One of those (which I use) is HSBC.

Answer 7

At your age a Roth IRA is probably best because you don't get penalized if you need to withdraw in an emergency.

When I was 21 I went to my bank and spoke with a financial planner. I have since learned more and have diversified but it was a good start.

Sadly, Oprah's site has loads of great financial planning advice including percentages suggested for you to save etc.

Answer 8

the longer you keep a cd at the bank the more money it will make...so yes! if you don't touch it you can make money out of it, an other option is check with insurance companies, some life insurance may cost a little more but you can actually cash them for yourself, not for just family if you die..