Nearly every commercial real estate broker is an independent contractor. There are many benefits to being compensated this way via 1099. However, there is also a lot of responsibility that comes with it.
The primary responsibilities include tax payments and deadlines. Of course, as a W-2 employee of a company, these things are taken care of for you. But, maybe the most critical responsibility falling on your shoulders is retirement savings.
What type of retirement account to use, how much to save, and when to begin are all decisions you will have to make at some point.
We speak with many CRE brokers every week who call us to inquire about what we do. This initial conversation typically leads to us creating a first draft Tax and Cash Flow Plan. This plan sets expectations for your tax liability, and knowing this gives you better control over your cash flow.
To develop the Tax and Cash Flow Plan, we ask two primary questions. First, how much do you think you’ll earn this year, and what amount of money can you set aside for your future? Unfortunately, that second question about saving for retirement is often answered with “well, I haven’t thought about that yet.”
When we hear this, we know we’re providing value already. You’re not a W-2 employee who has been handed a form to fill out to set up a 401(k) and choose a contribution rate. This form is never going to make its way to your desk as an independent contractor. You will have to start this on your own.
In a stressful eat what you kill environment, taking care of important decisions about saving for retirement is often an after-thought. Until you get to a consistent income, you are not worrying about a 401(k). It would help if you weren’t many years into your career before you are thinking about this.
What amount I should be saving is often a follow-up question from the broker. Of course, we can precisely answer this question if we know your long-term goals, but not everyone has an idea about this with three or four decades of career in front of them.
So, our most common answer is that you should save more than you did last year. CRE brokers working with us are more likely to accomplish this because we ask the question and put that savings goal in front of them throughout the year. We are a third party that helps make them more accountable.
If you don’t have a retirement goal yet but want a more specific savings goal than more than you did last year, we suggest 15% of your income. Getting to this savings rate early in your career will improve your odds of accumulating enough savings to continue your lifestyle into retirement.
Our goal is to introduce this question of saving for the future very early in your career. We are here to help you make slightly better decisions in many areas. The compound effect of better decisions from an early age is significant.
