As a small business owner, you quickly learn to be an expert “multitasker.” Most entrepreneurs wear several hats and juggle dozens of daily responsibilities, but this can make it difficult for them to stay on top of long-term retirement goals.
One of the biggest reasons people give for not starting a business is the lack of security in retirement. Absent a company pension plan or 401K, small business owners must take a proactive approach to building a retirement nest egg.
A recent study conducted by Meridian in Ontario indicated that 20 percent of the province’s small business owners worry frequently about their retirement plans. But there are some things that entrepreneurs can do now that will impact their financial future.
The following ten tips are designed to help small business owners put together a plan to fulfill their retirement dreams:
- Get started now. Retirement planning is important for every individual, but when all your time, energy and resources are going into the business it is easy to lose sight of this. Remember, saving for retirement is more like a marathon than a sprint, so don’t fall into the trap of putting retirement planning on the back burner – start saving as soon as possible.
- Build a business succession plan into your retirement plans. It is important to have a succession plan in place from day one, even if retirement is still decades away. Speak with your financial planner or attorney about formalizing a succession plan that will ensure you are making the right decisions for your future.
- Get to know your sources of retirement income. Avoid thinking that the sale of your business will be enough to fund retirement. The value of your business could depreciate over time due to unforeseen issues, and retirement income from Social Security is at serious risk. Also, if you decide to pass the business along to a family member you may not have the resources you need. A certified financial planner can help you make sound decisions.
- Consider an IRA, or other tax-free options for retirement contributions. If your company qualifies, you may also start a voluntary 401K plan. These options will lower your taxable income now, while ensuring the money is there when you need it in the future.
- Prepare for unexpected expenses. Having a robust retirement plan includes pre-planning for the unexpected, such as illnesses and disabilities. Consider the various life and disability insurance options available to you during this time, and work with a trusted professional who can explain them to you in detail.
- Be strategic about tax planning. Small business owners face a variety of tax implications when planning for retirement. For example, if you are planning on selling your business you may qualify for exemptions to capital gains tax. Working with a trusted tax professional will help you make better decisions about tax planning.
- Revisit your plans regularly. Even the best laid plans can become irrelevant over time. When life throws you curve balls you will need to be flexible with your financial plans. Make sure you review your retirement plans with a financial planner regularly, and check on the progress of your current investments. It may become necessary to make changes from time to time.