Have you thought about retirement? If you’re like most business owners, unless you’re within 10 years of the normal retirement date, you’ve probably given it thought, but perhaps not serious thought with a well-defined plan. According to The Guardian Small Business Retirement Readiness Study (2014), only 52 percent of small business owners feel "very" or "fairly well" prepared for retirement.
It’s really not all that surprising. Most business owners spend the greater part of their business life surviving, building, and reinvesting in their venture with the hope that, one day, it will bear all of the fruit they need. And it’s not uncommon for business owners to forgo investing in anything outside of their business because they feel that their business is their best investment.
Failure to diversify their assets is one of the main reasons why business owners near retirement age may be unprepared and, often forced into trying to sell or liquidate their business with unfavorable terms.
Getting Serious about Retirement
Business owners need to begin thinking strategically about their retirement and take steps to implement a solid retirement plan at the longest possible point in their time horizon. At a minimum, their plan should include:
A clear vision of life after their business. Maybe it will include keeping a role in the business, or maybe it will involve a whole new venture, or maybe it will be a clean break. Having clearly defined goals and a timetable are the keys to achieving financial independence on your terms.
A systematic investment program. Maybe it starts with $100 a week, investing in a diversified portfolio, and then increase as profits increase. By simply investing $400 a month starting at age 30, it’s possible to accumulate more than $2 million by age 65 (assuming an average rate of return of 6 percent*).
Utilization of the right retirement accounts. Business owners have several retirement plan options, some with the ability to contribute up to 25 percent of their net income on a tax deductible basis.
An asset allocation strategy for growth. The longer the time horizon, the greater the ability to assume more risk which is the key to achieving long-term growth. With proper asset allocation and broad diversification, it’s possible to achieve stable, long-term returns.
An exit strategy. Business owners need an exit strategy that clearly defines their objectives and the process for getting out of their business. It should address post-business financial needs, options for getting cash out of the business, tax implications, and a post-business income plan.
Business owners who want to achieve financial independence need a serious retirement strategy that considers all aspects of their business and financial lives. Waiting until the business is more successful or when you think you’ll have more time to do the planning may prove to be very costly. Your time is a wasting asset, so schedule time with your retirement planning specialist.
* Systematic investing does not ensure a profit. This example does not take into consideration fees or expenses generally associated with managed accounts or investment funds.