Thomas Mulready’s father worked in the printing ink industry his entire life, rising to branch manager toward the end of his career. When the end did come, however, Mulready’s dad didn’t quite know what to do with himself.
“He was at the top of his game, and when it came time to retire he kind of freaked out,” said Mulready, whose arts-focused Cool Cleveland online newsletter reaches 100,000 subscribers weekly. “He finally took up golf and enjoyed himself, but he had this crisis of identity.”
Mulready held corporate jobs himself over the years, including a senior vice president position at National City Bank. Art is his real love, fueled by the newsletter as well as frequent collaborations with Cleveland glam punk group Vanity Crash.
Doing what one loves does not come cheap, especially as an arts entrepreneur, Mulready said. To that end, the 65-year-old Lakewood resident paved a path to retirement with well-researched savings and investment strategies. Mulready did not embark on this journey alone, thanks to help from a professional finance advisor.
“People sometimes don’t have a vision for themselves beyond their industry,” Mulready said. “So find your passion, and make your passion pay. You’re not withdrawing or retiring, but leaning more into your passion.”
Saving for retirement is difficult enough when working for an established company – entrepreneurs and the self-employed don’t even have the benefit of an-employer-sponsored 401(k) retirement account that automates their savings, noted Michael Stanek, an executive board member with the Council of Small Enterprises business organization, also known as COSE.
Startup owners may be tempted to sink all their capital into the business for the potential of a huge retirement payoff. The fact that only about 80% of startups survive after a single year - while 45% fail after five years - should dissuade them of this risky notion, said Stanek.
“It’s difficult for owners if they’re breaking even to find how to put that money aside, and they do need to reinvest in the business,” said Stanek, owner of Hunt Imaging, a Berea-based producer of electrostatic toner for high-speed printers. “They look at retirement as something to worry about later, or think (the business) will be their golden ticket in the end. That’s a dangerous way to go. Unfortunately, a large percentage of businesses fold and they’re not left with anything.”Plans with benefits
Yet, along with careful budget structuring, there are options for entrepreneurs to have more cash flow in retirement, added Stanek.
With no workplace plan to contribute to, owners and gig workers must find retirement accounts best suited to their needs. Plans for the self-employed include a traditional or Roth Individual Retirement Account. IRAs allow participants to contribute funds regardless of where they work, although the contribution limit is fairly low – about $6,500 a year for those under age 50.
The key difference between Roth and traditional IRAs lies in the timing of their tax advantages, said Stanek. With traditional IRAs, holders can deduct contributions now and pay taxes on withdrawals later. Roth IRAs allow participants to pay taxes on contributions now with tax-free withdrawals later.
A Simplified Employee Pension IRA, or SEP IRA, is another possibility for sole proprietors or owners who don’t plan to hire many employees. Stanek utilized this tool, essentially an IRA that an employer or self-employed person can establish themselves, for a previously owned cycle tour company. Contributing about a quarter of annual revenue eliminated the need for Stanek to launch a 401(k), he said.
Solo 401(k) plans are available for owner-only businesses with no employees. These plans let entrepreneurs make contributions to retirement accounts as both an employer and employee. Additionally, annual contribution limits are markedly higher than IRAs – about $22,500 each year as of 2023.
Standard 401(k)s, meanwhile, are “the perfect plan” for more established enterprises, said Stanek.
“Both employers and employees participate, and 401(k)s allow a company match,” Stanek said. “A company in that maturity stage can use a 401(k) as part of a benefit plan for all their workers.”
The sooner, the better
Setting up a retirement account is only the first step for the self-employed – they must also prioritize saving money. Socking away 10% of your revenue is sound advice, but that final figure can vary based on age, disposable income, and the type of retirement account selected, said Stanek.
“Any financial expert would say diversification is important, too,” Stanek said. “Not only in the type of investment you make, but dividing among equities, bonds and fixed income instruments within each of those vehicles.”
Thomas Mulready started a 401(k) at the time of Cool Cleveland’s launch. Aside from his newsletter, Mulready has put money into stocks, a SEP IRA, and a 529 investment account used to help pay for his kids’ college tuition. Although these tools may not make a typical entrepreneur rich, they can cushion what Mulready calls “the go-go years” of early retirement.
“If you’re an artist or musician with certain expenses, you can pay those expenses off, and then do some planning long-term,” said Mulready. “Then follow your passion hard and see where it goes.”
Daniel Brown’s joy is Rust Belt Riders, a food waste recycling service aimed at sustainability and climate change mitigation. Brown, 34, is already thinking about retirement - not only for himself, but also for his 30-member team.
Rust Belt Riders follows an employee ownership model, meaning workers can own company stock for potential dividend distribution later on. Brown plans to eventually enact a standard 401(k), while following the 50-30-20 budgeting strategy in his own life. Devised by Sen. Elizabeth Warren, the basic rule is to spend 50% of after-tax income on needs, 30% on wants and 20% on savings.
“I’ve had varying degrees of compliance with that budget, but I try and make sure I’m only spending on things I need to,” said Brown. “I found that making even modest contributions (into retirement) is helpful, because the miracle of compounding interest is real.”
Financial literacy should not be a lonely endeavor, said Michael Stanek of COSE. Bringing in a vetted advisor is “imperative,” particularly a fixed-fee accountant as opposed to someone who charges based on percentage of your assets.
What Stanek knows for certain is that anyone forging an entrepreneurial path should start planning for retirement today.
“The sooner you start, the better off you’ll be,” said Stanek. “Make sure your credit cards are paid, that your mortgage is paid, and get an investment coach to guide you to retirement.”
