Caroline Edgar Albert trained horses for 20 years, then switched to dog training in 2009.
Her business, the Grateful Dog Training Inc., in Manchester, Vt., has remained solvent during the pandemic with the help of federal aid, a local grant and some ingenuity. Now she and her husband are thinking more long-term—about an exit plan within 15 years, and leaving some money to their two children.
When Ms. Edgar Albert started her business, training of dogs took place at clients’ houses, and she boarded dogs in her own home. In 2012, she took things up a notch by renting a storefront that now features a kennel. At its peak, the business, in addition to employing herself, her husband and their oldest daughter, had one full-time and three part-time workers.
This spring when the Covid-19 pandemic struck, the couple went without wages and laid-off staff. Over the past few months, the training side of the business has benefited from the pandemic puppy craze, helping offset some of the losses elsewhere. “Overnight, dog boarding was down 55%,” Ms. Edgar Albert says, adding that she recently hired her teenage son to clean and brought back one part-time employee but feels like she is working round the clock.
She and her husband expect to earn $96,000 from the business this year before taxes. They have $80,700 in cash from the sale of a previous home and are considering using that money to purchase a storefront.
The couple has $9,360 invested in an annuity from which they can start making withdrawals in four years when Ms. Edgar Albert turns 59½. She and her husband also have $2,500 in a health savings account and $5,174 in a Roth IRA.
They have a 30-year mortgage on their new home with $216,840 remaining; monthly payments are $1,650 with a 3.5% interest rate. They also pay $268 monthly for a car loan with a $4,400 balance.
Other monthly expenses include: $2,200 for groceries and other food (Ms. Edgar Albert says she doesn’t have much time to cook or shop); $530 for utilities; $115 for internet, $55 for garbage removal, $22 for water, $208 for auto insurance; $48 for life insurance; $562 for state health insurance, though that is likely to increase to $900 a month since their income has bounced back. The couple also pays about $500 a month for pet food and veterinary care for their own pets: one horse, several cats and three dogs.
Advice From a Pro: Samuel Deane, a financial planner for Deane Financial Partners Inc. in New York City, says, “Funding their retirement should really be the priority right now.” Owning instead of renting the storefront would likely add to their liabilities and reduce free cash flow, he says.
First, the couple should set aside three to six months’ worth of expenses, or between $20,000 and $40,000, as an emergency fund in a high-yield savings account where they can earn a higher return but still protect the principal.
Next, they should pay off their car loan. This would increase their annual cash flow by about $3,200, giving them about $25,000 a year in discretionary income, Mr. Deane says. He also recommends they try to trim other expenses, such as groceries and eating out.
The couple should maximize contributions to their Roth IRA and HSA. Being over 50, Ms. Edgar Albert can put $7,000 in the Roth in 2020. She also can contribute up to $7,000 annually to the HSA. Withdrawals from the HSA for qualified medical expenses are tax-free, and unspent money can be rolled over into the following year and used during retirement.
“Health-care costs are often a big expense during retirement, which is why a HSA is great savings vehicle for retirement,” Mr. Deane says.
Through the business, Ms. Edgar Albert also should create a SEP IRA for herself, her husband and other employees. The Grateful Dog can put as much as 25% of employees’ income into SEP accounts that can grow tax-deferred. There are caveats, including contributions being capped at $57,000 for an individual. But since her children work at the business, it is a good way to help them plan for their own retirement.
Mr. Deane also suggests that Ms. Edgar Albert roll over her annuity into an IRA once the seven-year penalty period is over. With the annuity, the couple can only withdraw a set percentage of the balance once they reach a certain age. That gives them less flexibility and liquidity in retirement than they would have investing in mutual funds or ETFs.
Ms. Ward is a writer in Winhall, Vt. She can be reached at firstname.lastname@example.org.