Lately, I've been focusing on our retirement planning and progress, or lack thereof. As a self-employed individual, it's harder for me than it used to be to get money into a defined retirement plan. I have no employer-sponsored retirement plan and therefore no matching contribution. However, a retirement contribution of some sort is something that I've still been making an effort to do. And since my effort might not come through bi-weekly contributions from my paycheck (since I don't get regular paychecks), I've instead been sticking to a "one-and-done" type retirement plan.
Income and Margins
I end up having to pay both sides of the employment tax for Social Security and Medicare, and at the end of the year, margins are often so razor thin that it's hard to scrape together a few bucks to throw toward my retirement savings. This means that I tend not to make contributions to a retirement account throughout the year. Part of the reason for this is that it's somewhat troublesome, since I don't really want to be transferring money or writing checks to my IRA every two weeks. The other part is that since money is tight, and income inconsistent, it's often difficult to know exactly what next month will bring and whether I should be stockpiling cash temporarily to maintain cashflow rather than sticking it into an IRA or similar investment where is isn't as accessible.
Waiting Until Year's End
I will typically wait until year's end to see where everything shakes out before deciding what to do with any excess cash…if there is any. This way, I can see what overall profits for the year have been, make decisions on risk levels for investing based upon what has occurred throughout the year, look at my final tax numbers, and look for any investment opportunities based again upon what the particular year has brought with it.
Looking for Opportunity
As I mentioned, with my one-and-done strategy, while it might not be ideal, it does provide me with opportunities to gauge the overall economic and financial standing of not only my situation but the nation's as well. By the end of the year, I've have a general idea of what the stock market is or isn't doing, whether I should be paying down debt or investing based upon interest rates and my personal financial situation, whether I should be looking at stocks and riskier investments or savings bonds and cash based upon economic instability, and making decisions based on similar overall trends.
Dollar Cost Averaging
One of the downsides to my one-and-done retirement funding is that I miss out on those regular contributions from my paycheck that once allowed me to better dollar cost average over time. With my old contributions through my employer-sponsored retirement account, I had the opportunity to invest bi-weekly, and therefore was purchasing shares at a variety of buy-in levels that moved with the trends of the market.
With my one-and-done strategy, I'm doing this as well, but on an annual basis rather than bi-weekly, which means my buy-ins are much less frequent and might not adhere as closely to the hills and valleys of the stock market. To help compensate for this, I use an income fund within my IRA. This fund, while moving in share price with the flow of the stock market, also pays monthly dividends. These dividends are reinvested and provide me some of that ability to dollar cost average that can be so beneficial and that can come with regular contributions. This helps me make the most of my one-and-done plan without having to contribute another dime of my own money to my IRA.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.