I've been in this business for fifteen years now and starting to think seriously about retirement planning. The income is decent but irregular, and I'm wondering what other auditors are doing for long-term financial planning. Are you setting up SEP-IRAs, solo 401k plans, or just traditional investment accounts? I'm also curious about transitioning the business - do you sell client lists or just wind down operations? Would love to hear from some of the veterans about what worked for them.
Retirement planning for utility auditors - what are you doing?
Great topic Amir. I've been doing this for twelve years and went with a solo 401k setup through Fidelity. The contribution limits are higher than SEP-IRAs if you have good income years. I'm putting away about 25% of gross revenue when business is good. Also diversifying into some rental properties here in Dallas - figure real estate is a good hedge against inflation. The business transition question is tough though. Client relationships are so personal that I'm not sure how much value there is in selling a client list.
I've been maxing out a SEP-IRA for eight years now and it's worked well. The nice thing is you can contribute up to 25% of self-employment income or $51,000 for 2013, whichever is less. Also set up a health savings account since I'm self-insured - triple tax advantage there. For business transition, I'm thinking about bringing in a younger auditor as a partner and gradually transitioning clients over. Some of these relationships go back twenty years and I want to make sure clients are taken care of.
The irregular income is definitely the challenge. I have months where I bill $40,000 and months where I bill $8,000. Set up automatic transfers to move 30% of every payment into savings accounts - retirement, taxes, emergency fund. Using a solo 401k through Vanguard with low-cost index funds. Also considering long-term care insurance since I don't have employer benefits. This business has been good to me but you definitely have to be disciplined about saving when times are good.
One thing I'd add is disability insurance. If you can't work, the income stops immediately. I pay about $3,000 a year for a policy that would cover 60% of my income. Also keeping 12 months of expenses in cash - this business can have dry spells and you need to be able to weather them. For retirement accounts, I'm doing a mix of solo 401k and taxable investments. Want some flexibility to retire before 59.5 if I can swing it.
Great advice everyone. I'm also looking at qualified small business stock if I ever incorporate. Could get some nice tax breaks on the sale if I hold it for five years. The business transition piece is what worries me most though. I've got clients I've worked with for fifteen years - they trust me personally, not just my company. Maybe the answer is gradual transition over several years rather than trying to sell everything at once.
Don't forget about estimated quarterly taxes. I put 35% of every payment into a separate tax account. Better to overpay and get a refund than get hit with penalties. Also using a CPA who specializes in self-employed professionals - worth every penny for tax planning advice. On the retirement transition, I'm thinking about offering consulting services to younger auditors who want to learn the business. Keep some income coming in while passing on knowledge.
This is all really helpful. I'm newer to the business but already thinking about these issues. Set up a solo 401k last year and trying to max it out. Also looking at whole life insurance as a tax-advantaged savings vehicle. The cash value grows tax-deferred and you can borrow against it. Probably not as efficient as index funds but gives some diversification and liquidity. Anyone else using life insurance as part of their retirement strategy?
Janice, I looked at whole life but the fees and commissions are pretty high. Went with term life insurance and invested the difference in low-cost index funds. Much better returns over the long term. For business continuity, I'm documenting all my processes and procedures. If something happens to me, my spouse could at least maintain basic client relationships until finding a replacement. This business knowledge is valuable - we need to protect it properly.
One strategy I've used is investing in dividend-paying stocks in utility companies. Figure I know the industry and can spot good investments. Also getting some passive income that could continue in retirement. Southern Company, NextEra, Dominion - companies I audit clients who use their services. Just make sure there's no conflict of interest with your audit work. The dividend income has been steady and growing for years.
All great points. I'm also looking at geographic diversification - not putting all my retirement eggs in one state's economy. Got some California real estate, Tennessee municipal bonds, and broad market index funds. The audit business has been good but it's concentrated in certain regions. Want my retirement funds spread around in case the local economy tanks. Also considering moving to a lower cost-of-living state when I retire - make those savings go further.