When most people think of the phrase retirement planning, they conjure up images of old guys in suits peering over their glasses at you, throwing out financial jargon designed to make you feel dumb. It’s true, retirement planning isn’t glamorous. There’s a learning curve, and it takes a little effort. You know what is glamorous? Being able to live, eat, and play wherever you want when you retire. Not having to eat ramen off a hot plate while living in your favorite niece’s basement is pretty nice too.
Thankfully, financial planning doesn’t have to be scary, and getting your retirement plan figured out is really empowering. Building a satisfying, sustaining massage practice includes planning for your own retirement. It’s a step that many of us overlook and can lead to anxiety now and financial instability later.
Let’s break down the options for your retirement planning in plain, simple terms that will make it easier for you to understand how to start saving for your retirement without feeling lost and confused.

How Much Do I Need to Save?

This is the most basic question: How much do I need? It seems like a simple question, but a lot of people don’t even know how much they should be saving. It helps to work backward to figure it out.

What do you want your income to be when you retire?

Let’s pick a number like $50,000/year just to keep it simple. If you would like to generate that much income at retirement (meaning, without working) you will need enough money so that you make that much off the interest. The usual figure to project interest-earned income is 4 percent. This means that whatever big chunk of money you have saved at retirement, you would be living off 4 percent of that per year.
Why 4 percent? It’s generally regarded as a “reasonable” figure based on the historical performance of the stock market. It’s also a bit controversial, so you may read other opinions on this. Surprise! People like to argue about money. Here’s the thing: don’t get too hung up on it. These are just guidelines to get you started saving money. If you’re off by a percent or two it’s not the end of the world. Missing the mark a little is better than doing nothing at all.

How much money do you need to save to get that retirement income from interest?

You can do some math to figure it out, but don’t bother. There are a million websites out there that will do the calculations for you. My favorite is the Retire Inspired Quotient tool (he calls it the “R:IQ” tool) at Chris Hogan’s website, www.chrishogan360.com. You can plug in your numbers and get some projections in just a few minutes. (If you use another tool, you may need to estimate a rate of return and inflation. When using these tools, I typically use 8 percent as my rate of return during the saving period, 3 percent for rate of inflation, and, of course, 4 percent withdrawal at retirement.)
Using these tools and your knowledge of your lifestyle, you can easily get the following numbers:
• What income do I need at retirement (factoring for inflation)?
• How much money do I need saved up at the moment I retire?
Yeah, it’s a big number. Seeing that huge number can freak people out. (What!? I need $600,000 to retire?! OMG!) But in reality, all this work is just to get you to a much more practical question:
How much do I need to save every month to get to where I want to be?
Here’s where the miracle of compound interest can really help you. Here’s a very conservative scenario:
Let’s say you have $3,000 in your retirement account today and you start contributing $200/month for the next 30 years. At 8 percent rate of return you would have $332,867. That’s less than $7 a day, and you end up with over $300,000 on the day you retire. That feels pretty great!
Obviously, more savings is better than less, but this illustrates the magic of compound interest. The majority of the balance comes from growth, not your investment. You CAN do this, but it takes time and discipline. Time to grow (meaning starting now) and the commitment to contributing regularly are key.
Now that you have these rough numbers, let’s talk about how to save.

What is a Retirement Account?

Most people have heard of the 401(k) plan offered by many companies. People tend to think this is a magical bank account that you’re supposed to put money in, but they don’t really know why or how it works.
There are actually many different types of retirement accounts, such as 401(k), 403(b), IRA, SEP, and pensions. Yes, they all sound like the names of droids, how fun! While there are differences between the types, they are all similar in concept. A retirement account is a place to put money that is sheltered from taxes. The trade-off for having the tax shelter is that you can’t use the money (without significant penalties) until you retire.
Tax “sheltering” means you can avoid paying taxes on the money either now or later. We’ll discuss the now or later part … later.
If you’re investing in a traditional 401(k) plan, you are investing money from your paycheck before it gets taxed. You are taxed later when you withdraw the money.
So, what is a retirement account? Is it just a bank account? Nope! A retirement account typically contains a mixture of stocks and bonds in the form of mutual funds. But what exactly are stocks and bonds?
A stock is simply a share in the ownership of a company. It’s a little bitty piece of the company. Simple enough, right? A bond is a little piece of debt issued by a company. Both are ways to invest in companies in the hopes that those companies do well over time, therefore increasing the value of your stocks and bonds.
The problem with stocks and bonds is that they are risky. You can typically get higher returns than you would in a bank account, but you can also lose a lot of money if the company tanks. It’s like putting all your eggs in one basket and then tossing that basket to the first cook you see. You might get an omelet out of it. Or you might get a very surprised cook and a lot of dropped eggs.
This is why mutual funds exist. A mutual fund is a collection of stocks and/or bonds that are all put together into one fund that spreads out the risk. Mutual funds are managed by professionals who aim to generate a good return on the fund. This makes it easier and less risky for average people to invest their money. Instead of investing in single-company stocks that can be very high risk, you are investing in hundreds of companies at once—so the risk is spread out.
While bank accounts typically return less than 1 percent, mutual funds can return anywhere from 5 to 10 percent to even higher. However, mutual funds are not FDIC-insured. With the potential for reward comes higher risk, but, for the most part, mutual funds are very stable over the long term. Even after many people’s retirement accounts lost value during the Great Recession (when many businesses lost value all at once), those who didn’t panic and stayed patient eventually got that value back.

Traditional (pre-tax) vs. Roth (post-tax)

Before we get into account specifics, you should know about an important distinction in account types. Retirement accounts shelter taxes either at the beginning of the investment (as you’re putting money in) or at the end (when you’re taking money out).
If you invest money directly into mutual funds (or stocks) without putting it into a retirement account, you will be taxed twice. You will be investing with money from your net pay (after taxes), and you will also be paying taxes on the growth at retirement. Retirement accounts allow you to only be taxed once: while investing or while withdrawing. So, which is better? Pay taxes now or later?
Imagine you are a farmer and you are buying seeds to plant your harvest. You have the option of paying taxes on the seeds (now) or paying taxes on the harvest (later). Which would you choose?
Ding ding! If you said the seeds, you win a cookie. The reason we pick the seeds is because they are worth less than the harvest. Let’s assume you will be taxed at 25 percent. Now let’s say the seeds are worth $100. Once they are planted and turn into food, they become much more valuable. Let’s say the harvest is worth $10,000. Would you rather pay taxes on $100 or $10,000? Twenty-five percent of $100 is $25. However, 25 percent of $10,000 is $2,500. As you can see, it makes much more sense to pay the taxes now rather than later. Our harvest is then tax-free.
That’s the difference between traditional and Roth retirement accounts. A traditional retirement account allows you to invest money into the account before taxes, either by taking it from your gross pay or via tax deduction. While you are avoiding taxes now, you will pay taxes on the growth when you withdraw it at retirement.
A Roth account is the opposite. You invest post-tax money into a Roth. There are no payroll deductions and no tax deductions. However, the entire balance at retirement is 100 percent tax-free. Sounds pretty good, right?
I want to really highlight this point because many people aren’t aware of Roth retirement accounts or don’t understand how they work. Many of you may use pre-tax (traditional) accounts because that’s the “default” or because that sounds good, but you are potentially missing out on a huge amount of tax savings at retirement.
By understanding traditional versus Roth IRAs, you can plan for a much higher retirement income later in life.
Now that you know the basics, let’s work through your options.
If it’s just you, you are self-employed, and you don’t have to think about offering retirement options to employees, consider a simplified employee pension (SEP plan).

Simplified Employee Pension Plan

The SEP (also called a SEP-IRA) is a common retirement plan for solo practitioners (though it’s my least favorite option). A SEP is designed to allow sole practitioners to invest pre-tax money. It allows you to contribute up to 25 percent of your compensation, provided the contribution does not exceed $54,000 annually (as of 2017).
The main advantage of the SEP for massage therapists is that it really opens up the limits on what you can invest. It’s pretty tough to max out your SEP due to the high limits, so you have a lot of flexibility on what you can put in. However, it’s pre-tax money, which means you will be paying taxes on the harvest, and you know how I feel about that.

Traditional IRA and Roth IRA

The IRA is the workhorse of retirement plans. IRA stands for individual retirement arrangement, and it’s designed to allow anyone to contribute to a retirement plan regardless of job type or employer.
An IRA allows you to invest up to $5,500 per year (as of 2017). Just like every other retirement account, you can invest into a number of mutual funds.
IRAs are portable, which means they are not tied to an employer. No matter where you work or what path your career takes, you can take your IRA with you because it’s tied to you as a person, just like your personal bank account.
IRAs do have some limits. If you are married and file jointly, the rules are based on your household income and whether your spouse has a retirement plan. Also, a Roth IRA has stricter limits on household income. The rules only really start to kick in if your household income goes well above $100,000, so explore the details if this describes you.
Bottom line: as a solo massage therapist, the Roth IRA is by far my favorite plan for you. If you’re a solo practitioner and you plan to contribute $458/month ($5,500/12 months) or less into retirement, the Roth IRA is for you. It’s easy to set up, it’s tied to you as a person (portable), and it grows tax-free.
If you want to contribute more than $458/month, the following options (especially a solo 401(k) plan) will be of interest to you.

Solo 401(k)

While company 401(k) plans are nice, they are not an option for many massage therapists because many are independent solo practitioners and 401(k) plans are only available through a business.
But wait! There is hope: enter the solo 401(k).
A solo 401(k) is pretty much what the name implies. It’s a 401(k) plan, but for solo participants. It’s perfect for massage therapists who want to contribute more than the Roth IRA limits and still want to take advantage of tax-free growth. This is made possible because the solo 401(k) comes with a Roth option! The solo 401(k) is also a good option for massage therapists whose household income exceeds the income limits for qualifying for a Roth IRA.
The solo 401(k) is only available to owner-only businesses—those with no employees other than the owner’s spouse and no plans to add employees in the near future. So, if you are a solo massage therapist and want to contribute more than the Roth IRA allows, this is the plan for you.
A solo 401(k) plan does take a little bit of paperwork to establish, but your financial advisor should be able to do all the heavy lifting for you. Once it’s set up, you will be able to contribute to either your traditional 401(k) and/or Roth 401(k), but the whole point of doing this ideally is for the Roth.
Just like a traditional 401(k), the solo 401(k) allows you to contribute up to $18,500 into the Roth and up to $54,000 per year into the traditional portion (just like a SEP).
As you can see, the solo 401(k) can be a more attractive and more flexible alternative to a SEP simply because of the Roth option. It’s honestly a rather underutilized but very nice plan for solo massage therapists. I highly recommend giving it a serious look.
Now, if you work for a company that offers it …

Company 401(k)

The 401(k) plan is the one everyone knows about. It can only be offered by a company, so if you’re employed by a spa or a massage franchise, they may offer this.
A 401(k) can have both traditional and Roth options (yay!) so if you have this plan available, you’ll want to ask about both options. Some companies don’t even know about the Roth 401(k) option, so if your employer doesn’t offer it, you can ask them to add it.
Many 401(k) plans also offer a match. This means the company will match your contribution up to a certain amount. Three percent is a pretty common figure, but it can vary. Some companies even contribute to your 401(k) without you doing anything. This is rare but a nice perk if it’s offered.
If you work in a spa or a business that offers a 401(k), your ideal scenario is to invest up to the match in the traditional 401(k) and then put the rest into the Roth 401(k). Companies can only match in a traditional 401(k) so you’ll want to get the “free money” and then put the rest into the Roth for the tax savings (seed versus harvest).
If your company does not offer a Roth 401(k), put the rest into a Roth IRA.
If your company does not offer a match, put everything into the Roth 401(k) or a Roth IRA.
The key is to do things in this order: (1) Match first (up to the match), (2) Roth (after reaching your match). Example: Mary works at a massage franchise and they offer a 401(k) plan with 3 percent match and no Roth option. She makes $3,300/month and wants to contribute $300/month into retirement. To get her maximum match, she would first contribute $99/month (3 percent of $3,300) into the traditional 401(k), and her company adds an additional $99 (yay!). She still has $201 left to invest, so she puts that into her Roth IRA every month. She is now investing $300/month total but split between the two plans in order of importance based on the match.
You can contribute up to $18,500/year into a 401(k) plan.
This scenario assumes you work for a company that offers a 401(k) plan … but what if you own a massage business with employees? Can you set up a business 401(k) plan? Yes, you can! However, it can get tricky because there are rules about what you as the owner can contribute. It’s probably not an ideal option for most massage therapists, so I won’t spend 10,000 more words going into all the details here.
If you have W2 employees … think IRA.

SIMPLE IRA

If you are a massage business owner and have employees, a SIMPLE IRA might be worth a look. SIMPLE stands for Savings Incentive Match Plan for Employees (because SIMPFE isn’t as fun to say, I guess?) and is designed for small businesses with 100 employees or less. If you are a practitioner with W-2 employees (not contractors), then you can establish a SIMPLE IRA. It’s easier to set up than a small business 401(k), and allows everyone (including you) to contribute up to $12,500/year into the plan. The downside is that there is no Roth option.
Another “feature” of the SIMPLE IRA is that you are required to match or contribute to your employees’ retirement accounts as a stipulation of the plan. You can either do a match up to 3 percent of whatever the employee contributes or you can contribute a flat 2 percent of the employee’s compensation regardless of whether they contribute or not. You have to do one or the other.
The SIMPLE IRA is not my favorite plan, but it does have its place. If you have employees (and therefore can’t do a solo 401(k) plan) and you don’t want to hassle with the administration of a standard 401(k) plan, then the SIMPLE IRA can be attractive.
As a business owner, offering a retirement plan with a match can be a great perk and a good recruiting/retention tool.

How to Invest (And What to Invest In)

Now that we’ve discussed the different types of plans and how they work, let’s talk about what to invest in. How do you pick your investments?
It’s not as hard as it looks. It’s not the worst thing in the world to look at your financial advisor and say, “Just pick something for me!” They will probably pick out some good investments for you, and you’ll be just fine. However, if you want to learn more about what you are actually investing in, here’s a quick primer.
Remember how we said that retirement accounts are typically made up of mutual funds? When you set up and contribute to your retirement account, you get to decide which funds to invest your money into.
Mutual funds are held by firms that manage the funds. All the mutual funds that one firm has fall into that firm’s “fund family.” Some examples of firms include:
• Franklin Templeton
• Fidelity
• American Funds
• Invesco
• Legg Mason
• Vanguard
Of course, there are tons more than this handful of examples. These firms often have lots of funds to choose from, and it can get confusing, but here are some things to look out for:

10-year and lifetime track record.

Take a look at the rate of return over 10 years, as well as the life of the fund. Ifyou go to the firm’s website and explore the funds, you will be able to see the track record and performance of any of their funds over time.

Morningstar rating.

I also like to look at the Morningstar ratings (www.morningstar.com). Morningstar is an independent investment research service that allows anyone to search for mutual funds and get insights and ratings on the quality and stability of the fund. Look for 4- and 5-star funds.

Fund category.

A good rule of thumb is to balance your investments between different types of funds. Financial expert and author Dave Ramsey recommends four types: growth, growth and income, aggressive growth, and international.1 I happen to like this strategy as well, although you might want to customize it for your specific needs.
You can also explore funds that include specific types of companies. For example, many funds are made up of stocks from industry-specific companies like health care, technology, biotech, or natural resources. If you have an inclination to invest in biotech, you can find funds that focus on companies in this industry.
Again, if all this sounds way too granular, there is zero shame in sitting down with your financial advisor and asking for recommendations. That’s probably the best route for most people. They know investments the way you know anatomy. When looking for a financial advisor, you’ll want to find someone who teaches you concepts rather than tries to sell you products right away. Look for someone who has the patience to explain exactly what you are investing in. If you feel that someone is trying to sell you on something or that they are talking down to you, this is probably not the advisor for you.

How to Set Up Your Retirement Account(s)

Now you’re an expert on different types of retirement accounts, and you’re ready to get started. So, what happens next? How do you actually set things up? Your best bet is to work with a financial advisor. Their job is to help you figure out the best options for your specific situation, and they can take care of the paperwork (boring) and setup process (also boring).
While you can set up accounts through banks and in some cases online, you’re not likely to do as well from a performance and service standpoint this way. Talk to a professional and do it right. The majority of financial advisors won’t charge you anything; they get paid from commissions based on your investment, so you won’t ever need to write them a check. (If you don’t have a financial advisor and the thought of finding one sounds intimidating, email allissa@massagebusinessblueprint.com and we’ll connect you with one who has experience working with massage therapists.)

When and How Often to Invest

How often should you make contributions to your retirement account? While massage income can be unpredictable, the ideal schedule is every month. You want to do this to take advantage of dollar-cost averaging. Dollar-cost averaging is a fancy way of saying that if you invest a set amount of money every month, you will end up buying more shares of your mutual funds when the price is low and fewer shares when the price is high.
Why is this good? Because you want to buy more shares while the price is low so that when the value goes up again your account is worth more. Since mutual funds are made up of stocks and bonds and the price (value) of stocks and bonds also go up and down, the value of your mutual funds will also go up and down, which affects the value of your retirement account.
If you wait until the end of the year to invest or you invest with sporadic chunks of money, you risk missing the timing of the market and not getting as much growth as you would if you were to use dollar-cost averaging.
In short, budget for a set monthly amount and stick to it. Ideally, you would set up an electronic auto-draft to transfer the money from your bank account into your retirement account each month. Then, you never need to second-guess yourself or even remember to transfer the money. It’s just a regular expense that takes care of itself on a monthly basis.

Rollovers

A rollover is when you transfer the money from one retirement account into another. Rollovers are most often used when someone leaves a job. The most common scenario is that they would take the old 401(k) and roll it into an IRA.
Unfortunately, when most people leave a job, they let their old 401(k) just sit there gathering dust. Don’t be that person!
Without the match counteracting it, the fees tacked onto your old 401(k) can add up and stunt the growth of your account. If you have ever held a previous job before massage and you had a 401(k), be sure you roll it to an IRA. It can help you stay organized and can end up helping you get a better return on your money.

Getting Started

Is your head spinning? No worries. Let’s keep it simple.
Here are my recommendations:
• If you’re a solo practitioner with no employees or employees who work very little (contractors don’t count as employees), then I would start with a Roth IRA. If you max that out and want to contribute more, set up a solo 401(k).
• If you work at a spa or massage business, invest in their 401(k) up to the match and then put the rest into a Roth IRA.
• If you own a massage business and have W-2 employees, consider a Roth IRA, SIMPLE IRA, and/or standard business 401(k).
• Whenever possible (barring some specific exceptions), choose Roth! Remember: you want to pay taxes on the seeds, not the harvest.

Help, This Is All Very Intimidating!

OK, I get it. Money is scary. We all have questions like:
• How will I ever save enough to retire? (Regularly)
• I’m barely making my bills right now, how can I save for retirement? (Carefully)
• Can’t I just worry about it later? (No)
• Won’t the government take care of me when I retire? (Also no)
These are all valid questions. The thing to remember is that nobody suddenly flips a switch and has all their retirement savings taken care of. Saving is not a one-time event; it’s a slow, gradual, consistent habit.
If you don’t know where to start, set up a Roth IRA and contribute $50/month to it. After a few months, see if you can increase it to $100/month. Then $150 and so forth. Start small and work on your budget so you can get to where you want to be.
It also helps to think of monthly numbers in terms of massage sessions. For example, maxing out your Roth IRA is great, but $458/month sounds like a lot of money. However, if you think of it as six additional massage sessions a month, it seems more attainable ($458 ÷ $75 for a session = $6.1). Can you hustle and do six more massage sessions in a month? Probably.
Also think about your retirement contributions in comparison with your car payment. Most of us don’t give a second thought to buying a car on a loan and paying $200–$300 a month on car payments, but for some reason we balk at investing that much into our future. Being willing to rethink your habits and priorities puts you ahead of the pack and in good shape for a healthy financial future.
Don’t delay your retirement! Make it a priority. Most massage therapists (well, most people in general) don’t think about it and let fear of the unknown keep them from planning for their future. Take control of your retirement planning and set yourself up for comfort and peace later in life. You’re worth it.

Notes

1. DaveRamsey.com, “How to Invest in the Right Mix of Mutual Funds,” accessed February 2018, www.daveramsey.com/blog/how-to-invest-in-right-mix-mutual-funds.

Allissa Haines runs a massage practice and collaborative wellness center in Massachusetts. She partners with Michael Reynolds to create business and marketing resources for massage therapists like you at www.massagebusinessblueprint.com.