Previously in this two-part feature: Know when to hold 'em, fold 'em: Timing the market for retirement in harsh times
In a truck owner-operator's world, hanging up the saddle and retiring is synonymous with selling the truck and saying goodbye to the open road. The best of the best plan decades in advance to enjoy a long retirement with all their needs met, but as the first part of this feature noted, best-laid plans oft enough go awry. With used-truck, home and stocks values all fluctuating wildly over the last few years, it's shaky ground: Recent polling showed nearly half of respondents didn't feel prepped for retirement.
Among the other half that did, only about 4 in 10 could describe their own situation as "completely" prepared. The balance were just somewhat comfortable with the prospects.
Longtime Overdrive contributor and owner-op coach Gary Buchs, an owner himself who's got a recent-history retirement from the road in his past, noted his best single move wasn't a what, but a when. Buchs and his wife started saving more than 40 years ago, and encourage anyone interested in setting themselves up right for retirement to talk to a professional and "get started early putting in small amounts."
Trucks depreciate, health depreciates, but as Buchs explained, investments over time grow and can build real wealth. Even if you don't have 40 years to watch your investments mature, there's still hope, and plenty you can do to make your money work for you.
"I always suggest the clients I’m business-coaching use a combination of pre-tax" (like traditional IRAs and 401ks) "and post-tax" (Roth variants) savings vehicles, said Buchs. A Roth IRA is funded with money you've already paid tax on, and traditional such accounts are the opposite -- you're taxed when you pull the money out. A Simplified Employee Pension (some consider the SEP an ideal investment vehicle for self-employed people) also gets funded with pre-tax income.
Buchs urges long-term retirement investors to put their bets on principal retirement vehicles that are financial, not physical. While selling a truck can represent a somewhat large payday, depending on market conditions and investments made in improvements to the rig, it's not likely to be sufficient as a nest egg for your retirement years, not to mention the tax burden.
"I know a lot of older drivers that finally retire, sell the truck and trailer for maybe $200,000, maybe even more now," Buch said, and think they're going to retire on that lump sum. Unfortunately, that often puts Buchs in the position of asking some uncomfortable questions.
"People don't realize they're going to have to pay taxes on the sale of equipment. It's not tax-free income," he said. "It could be significant -- 20% or 25% depending on the individual's situation. A lot of people don't take that into account."
The same is true of real estate. "You cannot manage the tax burden nearly as well" with a big home or truck sale, he said, retirees who think they can could easily be just setting themselves up for a jaw-dropping tax bill come April.
Instead, Buchs tries to focus on the basics. He mentioned an older owner-operator currently having one of his best years ever, but staring down the barrel of a big tax hit and with no money saved for retirement.
Buchs advised the owner to take some of his glut of cash, about $12,000 or so, and stick it in an SEP. "It would be a write-off, like buying $12,000 worth of fuel," he said of the pre-tax investment. With taxes on high earners sitting around 30%, this results in an immediate and worthy return for savers. "Think about it, that's like a 30% return on money right up front," he Buchs.
SEPs, he feels, work especially well for independents saving long- or even short-term, yet considering how much to allocate in such a retirement vehicle opens up another of his uncomfortable questions for owners he consults.
"Do you know what you're going to get for Social Security?" he asks.
As long as you've been paying into the program during your working years, "you can expect roughly 40% of your income during your working years directly from the Social Security Administration, said Bridget Bearden, research and development strategist at the Employee Benefit Research Institute. That's just about the same as its ever been, she said, for a rule of thumb, though Social Security payments (unlike the IRS' per-diem deductions for truck owner-operators) were just adjusted for inflation recently.
Bearden's organization offers a free calculator tool to help workers see how much money they can expect to bring in during retirement. ERBI regularly surveys workers on their retirement planning situations, and always comes back to the same conclusion: People wish they had planned and saved more, she said.
Bearden, whose father drove trucks and lost his CDL privileges unexpectedly due to a health condition, warned against counting your chicken's before they hatch.
"There are unique characteristics of trucking," she said. "I don't know all of them to be honest, but I do know physical health is very important."
ATBS President Todd Amen, like Buchs, stressed the importance of tax-advantaged retirement plans, and said not to worry about recent market fluctuations. "You make a gain even if the investments you buy stay flat. However, you need to have a longer term horizon than a few years as sometimes assets" like stocks "take a while to recover from downturns" like this year's in those markets.
One upside of the choppy economic waters today, said Amen, is the return of higher-yielding interest rates. "Treasury I Bonds are currently yielding 6.8%. You can invest up to a max of $10,000" without betting on the market, he said.
"Other than that, I like sticking to things I know, so for the owner-operator [that's] continue paying down their truck/trailer debt, buy an APU to save money on fuel, and put money in a maintenance escrow to be able to repair your truck," he said.
Ultimately, retirement is like work in that you'll get out what you put in. Being a smart, disciplined owner-operator can yield tremendous, legacy-building results over time, but if you're behind the curve on savings, like the plurality of Overdrive readers responding to the poll above, there's still time, and there's still hope.
An old saying reminds us that the best time to plant a cherry tree is 20 years ago, so we can enjoy the fruit now. The second best time, however, is right now, so that we can enjoy it in the future, and just maybe leave it for the next generations to enjoy as well.
Find more information around retirement savings/investment, among a myriad other topics, in the Overdrive/ATBS-coproduced "Partners in Business" manual for new and established owner-operators, a comprehensive guide to running a small trucking business. Click here to download the newly updated 2022 edition of the Partners in Business manual free of charge.