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  • Writer's pictureLindsey Nelson

Retirement for Hairstylists: What You Need to Know to Plan for Your Future.

Retirement planning for hairstylists

It seems that everywhere you turn, someone is preaching about retirement.

Whether you are on TikTok or YouTube, someone is advising you on finance, retirement, and your future.

But if you are in your early 20s, you might be wondering what all the financial terms mean and why you should even start to save for retirement.

With all the noise and opinions circulating, it's easy to become overwhelmed and even frustrated with the topic of retirement.

Let's clear the air and discuss the most common questions young people have when it comes to their retirement.

Why should young adults be concerned with retirement so early?

Most financial advisors will agree with me that young people should start investing in their future early in life.

That way, they have more years to save.

Time is your best friend when it comes to saving; the more you save today, the less you'll have to save in the future.

A growth-focused portfolio will average between 6-7% over a long period.

Growth-focused describes the style and goals of your investment plan.

This particular plan is for high-risk and high-reward and typically for those who are not retiring any time soon.

According to the Rule of 72, your investments should double every 10 years. 

Think of it this way: your $10,000 today could be $20,000 in 10 years.

Time allows your hard-earned money to work hard for you, all thanks to compounding interest, which is when you earn interest on the money you've saved and the interest you've earned along the way.

Over an extended period, compounding interest creates a sort of snowball effect, allowing your money to grow in value.

Retirement planning for hairstylists

What is the current age for retirement?

When you retire, it is determined by what you save today and how you invest those dollars.

If you wait until you’re 40 to start saving, likely, you’ll not retire until 65-70.

What your retirement years look like is roughly decided by how much you plan on saving.

If you plan to have a lifestyle similar to how you're living currently, then investing as much as you can must be a priority.

As a good rule of thumb, 10% of your income should be allocated to retirement savings.

If you start saving at the age of 20, you’ll likely reach your goals far sooner.

Most often, individuals retire between 60 and 65 years old.

What are some ways young adults can start saving for retirement?

Every dollar makes a difference, even if it is $5 a week!

You've got to start somewhere, and a slow start is better than not saving at all.

Your first step towards saving for retirement should be to secure your emergency fund and start working towards putting it away for your future.

Start with ensuring you have a firm foundation; by that, I mean an emergency savings fund. 

Think of it this way: your home will fall if your foundation isn’t strong.

Emergency savings are strictly set aside for emergencies, and shopping is not an emergency. DANG!

This fund would contain money for when your vehicle needs to go to the shop or when you have a medical emergency and have to go to the emergency room.

Without it, you’re borrowing or pulling from retirement to fund emergencies.

Let's talk about some retirement options.

The first option is your employer's retirement plan, 401(k).

Most salon owners are not set up to offer an employee retirement package, but we will still discuss it.

401(k) is a retirement fund where you and, most of the time, the employer contribute money towards the fund.

This type of retirement fund has tax benefits as well.

If your employer matches your contributions, your investment will grow faster.

Another option is a Traditional or Roth Individual Retirement Account.

These accounts are when the individual is the sole contributor to the fund, and these contributions can have tax benefits.

Let's discuss the main differences between these funds. 

What is a 401K?

Not all salon owners offer this type of retirement plan, but if they do, this is how it works.


401(k) is a specific investment account that allows employees to save for their retirement and that will enable employees to contribute pre-tax or after-tax contributions depending on the type of 401(k) you have. 

The money is typically deducted directly from your paycheck, which is excellent because this transaction is done for you; you never miss a contribution.

The employer can also match contributions or offer a once-a-year profit-sharing contribution.

I personally have never worked at a salon where a 401(k) retirement plan was offered.

Some corporate salons and spas do, in fact, offer their employees this package, which is great!

You will have to ask the employer at your interview if they offer any retirement options.

Click here to read about Nailing Your Salon Interview.

Retirement planning for hairstylists

What are the differences between a Traditional IRA And a Roth IRA?

An Individual Retirement Account, or IRA, is a long-term savings account where individuals can contribute their earnings and benefit from certain tax advantages.

Since these accounts are set up to help you save for retirement, the money held in them can only be accessed after the age of 59 1/2 unless you want to pay significant penalties to receive it.

There are some exceptions to this rule; however, you will need to consult your Financial Advisor and CPA to understand the details. 

The main differences between traditional and Roth IRAs are how the dollars are taxed

A traditional account grows tax-deferred, so you delay paying taxes until you withdraw the money.

Contributions are tax deductions, so if you put in $4,000, your taxable income decreases by the same amount.

With a Roth account, your contributions are not a tax deduction, however when it comes time to withdraw, you will not pay taxes

Both traditional and Roth accounts have rules and income limits.

Depending on your tax strategy and retirement goals, your financial advisor may suggest a specific plan for your financial future.

Remember, everyone's savings and retirement plan will look different due to many factors: age, income, debt, marriage status, children, and retirement goals.

How can a hairstylist benefit from contributing to an IRA?

Both employees and self-employed hair stylists may be able to write off their IRA contributions.

A write-off is an accounting term for a business expense that can be partially or fully deducted from taxable income.

Your taxable income is a portion of your gross that you are required to pay taxes on.

Your write-offs may help lower the amount of money you may owe the IRS.

Self-employed individuals have other options for saving for retirement, such as Owner K plans, simple IRA plans, or SEP IRA plans.

Please seek the advice of a trusted CPA to understand how these different retirement accounts can benefit your business come tax time.

Retirement planning for hairstylists

Why can't people rely solely on Social Security for their retirement plan?

Social Security is a huge topic of interest for young people.

The reality is that Social Security is at a deficit; it’s likely to look different by the time 20-30-year-olds reach 67.

Some people say not to even plan on receiving Social Security due to this deficit, and if you do receive money, then it's a bonus!

A better retirement strategy is to plan with the things that you can control: your spending, your savings, and your investments.

Contrary to its name, Social Security is not secure, and we cannot depend on it being available when we retire.

How much should a young adult save per month?

Save until it hurts! I’m a big fan of an emergency fund, which should cover 3-6 months of necessary expenses.

Like I said before, the first step towards saving for retirement should be to secure your emergency fund and then start working towards putting it away for your future.

This way, you’re never pulling from retirement to pay for an insurance deductible, emergency medical event, or in the event where you cannot work.

To determine how much you need to save, add up all of the monthly expenses you are responsible for at home and work.

Everything from your rent/mortgage, car note, utilities, any credit card debit or loan payments.

Remember any expenses for work behind the chair: rent, insurance, student loans, and monthly education subscriptions.

These figures should give you a rough estimate of how much you should save in case of an unplanned expense or a medical emergency where you cannot work.

What strategies are recommended for young adults to implement to start saving for retirement?

Don't wait! Even if you’re putting $20 or even $5 a week into savings, do it!

Every dollar makes a difference.

If you can afford to stop at Starbucks or Chick-fil-A, you can afford to save for the future.

As a good rule of thumb, 10% of your income should be allocated to retirement savings, and debts should never be more significant than 30% of your take-home pay.

Remember, everyone's savings and retirement plan will look different due to many factors: age, income, debt, marriage status, children, and retirement goals.

As your elementary teacher would say, keep your eyes on your own paper and stay focused on yourself and your goals.

Retirement planning for hairstylists

What do you need to do next?

When you are serious about planning for your future, I suggest that you find a financial advisor (FA) who will help you strategize a retirement plan.

Some FA's may help you create a plan to pay off any debt like student loans or help you save for your own child's college fund.

Do some digging first when searching for an FA. You want someone who has a good reputation, who is licensed, and who gives you options.

They need to be trustworthy, and they need to understand your lifestyle, debts or loans, yearly income, and any goals for your future.

You have to be completely transparent and honest with a financial advisor if you want them to guide you properly.

Your parents or guardians may have an advisor whom you can trust, but if they don't, some of your clients may know an FA whom they would recommend to you. You just have to start the conversation.

That's the great thing about our industry: we have so many resources and connections.

If we don't directly know who can help us, someone we work with does!

Hey friend!

Lindsey Nelson blogger for cosmetologists
Lindsey Nelson

My name is Lindsey, and I have been a hairstylist for nearly twenty years, and I am a beauty blogger.

I love to educate my readers not only on how to build a beauty business but also teach them the current trends and the latest news in the beauty industry.

I have honest reviews on hair products, hair tools, and cosmetics, and I give you my honest opinion.

I've been in the industry for a while now, so I'd like to say I know a thing or two!

If you found this article valuable, I'd appreciate it if you would share it with someone who will also find it valuable!

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