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Cents and Sensibility

BY GUY STEELE

Determining right plan
for small biz owner

Question: "I'm confused about all of the different retirement plans that are available for a small business owner. How do I determine which plan is right for me and when should I start it?"

Answer: Before deciding on any one plan, you should ask yourself six simple questions:

1. How many employees do I have?

2. Are they full time or part time?

3. Do I have any part-time employees whom I want to exclude?

4. What is my pattern of profits?

5. Do I want to make flexible or mandatory contributions?

6. How many years do I have until I retire?

Discuss these questions with your investment representa-tive and/or CPA to determine which retirement plan would best help you reach your objectives.

When is a good time to start a retirement plan? It is never too early.

One important factor to be aware of is that the longer you have until retirement, the longer your retirement money has to grow.

Consider Roger, a recent college graduate, who establishes a tax-sheltered retirement plan and agrees to contribute $2,000 per year.

Assuming a yield of 8 percent, Roger will accumulate $659,165 by age 65.

If Roger waits until he is 30 to establish his plan, his savings will grow to $344,633, assuming the same contributions and yield.

In other words, waiting to start a retirement plan would cost Roger more than $300,000.

On the other hand, it's better late than never to start a retirement plan. If Roger waits until he's 40 to establish his retirement plan, he will contribute more than $50,000 to the plan, assuming the same contribution schedule and yield.

Thanks to the effects of compounding, this amount will grow to $146,212, or nearly three times the value of his contributions.

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Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com