Arik Efros, co-owner (with wife Eva Scrivo) of the Eva Scrivo Salon in the Flatiron area of NYC, says one of their challenges is getting employees to appreciate the importance of THE FUTURE in an industry where people tend to have a “day-to-day” approach to their finances. “It’s all about how much a stylist or nail artist books on a given day and how much she or he makes in tips,” Efros says. “One may have a great month, then spend it all and feel great about it.” Therefore, he says, it’s important that every beauty professional think about things like retirement plans before joining a team. “How do you eventually retire when your income has always been created with your own hands?” Efros asks. “After all, this work is physically taxing and you may not want to be doing hair or nails any longer in your 70s.” Without a plan, Efros adds, “A pro may be earning $100k+ annually and still end up with very little savings, especially if living in an expensive city like New York or San Francisco. Most don’t really think about this until they’re in the twilight of their careers, by which time it may be too late to build a meaningful nest egg for retirement.”
Stylists working at the Eva Scrivo Salon benefit from a 401K plan, where the company contributes by matching up to a certain amount of what the employee saves. “We implemented a company 401K plan in 2017 and already have employees – who have saved aggressively - with as much as $50,000 - $60,000 in their accounts. Those who contributed around the minimums, still have $10k - $30K, depending on their incomes.”
Efros points out that it’s a great motivator to save for retirement because that’s the only way you will receive company contributions. “Even though your employer's contribution maxes out at 4% of your annual income, you may put away as much or as little as you’re comfortable with, and you may change your contributions amounts at any time. At 4% employer contribution, if you earn $100K/year, that’s an extra $4K going into your retirement savings from your employer every year!” To simplify, Efros shares this example: “If you earn $100k/year and put away 5% - or $5000 - and your employer matches another 4% - or $4000 - you’ve just earned $104,000 but will only pay taxes that year on $95,000.” Efros points out that you do not pay taxes on the money put away or that the employer matches, nor do you pay taxes on any investment income in your 401K as your money grows. “In fact, you don’t pay taxes on it until you start withdrawing the money later in life, and only on the amounts you withdraw annually, and based on the tax bracket you fall into at that time which is likely to be lower than when you’re in the prime of your earning years.”
That discipline will pay out in the long run. “Before you know it you will have tens and even hundreds of thousands of dollars saved for retirement. Although you can’t touch this money without paying a penalty to the IRS until you’re 59.5 years old, it’s a nice feeling to know that the money is there and growing - waiting for the day you finally decide to retire or at least significantly cut back on how much you work.” Efros recommends that salon pros should start early. “The multiplier effect of money when it’s invested well, can be impressive. You could easily end up with seven figures in your 401k, especially if you start saving in your 20s or even your 30s.”
When asked why salons and spas rarely offer a 401K plan, Efros says that most owners don’t understand this process and feel intimidated by it. “No question, there are complexities to setting it up and maintaining it, and the business owner is on the hook to do everything by the book or potentially face harsh penalties that may be imposed by respective regulatory agencies. It took us a while to really understand how this process works and to build up the courage to implement it.”
There is help out there for business owners. “Financial advisors can help,” Efros adds. “When looking for one, make sure he or she is a fiduciary, which means that by law that person must place your interests above his or her own. As obvious as that may sound, a financial advisor who is not a fiduciary is NOT obligated to place the interest of a business or its employees above, say making more money in fees for him or herself.”
For a small business, these programs are an investment. “For example, if the salon or spa has an annual payroll of $1 million and all employees contribute at least 5% to the plan, it will cost the business an additional $40K in plan contributions, which in the case of most salons and spas, comes right out of the owner’s pocket.” But according to Efros, the additional goodwill and loyalty on the part of the Eva Scrivo employees is well worth the extra expense, “Not to mention that it’s a nice feeling to know that you’ve created not just jobs but true careers with security at the end of the rainbow.”
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