How To Plan For Retirement When You Run Your Own Business

Did you know around 30-percent of the US population earns through self-employment? Well, it is quite a large number that is steadily increasing day by day!

Online businesses, recording podcasts, YouTube content creation, gaming, and blogging are some of the top ways used by people to generate income by themselves.

Being your boss is the biggest perk these self-employed people enjoy. There is no strict 9 to 5 routine to follow, files to report, or maintain conduct.

However, being self-employed is not so easy too. The flexibility means you are responsible for everything, which also includes planning for retirement.

Managing finances, keeping the business running, and saving for the time when you can no longer work can be a challenging task.

Well, to assist you, we have articulated the best methods to plan for retirement when running the business yourself. Read more to unravel!

Risk of Retirement Crisis (for Small Business Owners!)

According to a survey conducted by Paychex, about 70 percent of the small business owners operating in the US are not ready for retirement by the age of 65 or 70. Quite evidently, that’s an alarming statistic, depicting a very high risk of retirement crisis for small business owners.

Common practices that contribute to this disturbing development include not planning. Most small businesses begin their journey with a small capital, and hence, they find themselves earning and returning to the business.

Occupied by the daily activities and trying to meet the ever-growing expectations of their clientele, small business owners fail to pay attention to retirement plans. They do not devise an exit plan beforehand, which troubles them when the time of retirement approaches. Also, uncalculated investment for growth purposes, as well as neglecting your fair sum of salary, contributes substantially to the eventual crisis.

Will You Have to Sell your Business?

The majority of small business owners keep the sale of the business as their retirement plan. Although this is an effective idea, you should only keep it for a backup.

It is merely because selling the business for retirement has many risks involved. These include:

Fluctuating market trends

While one can predict the trends of an upcoming year, prediction of the future is impossible. There is so much uncertainty that one can never be sure whether you will receive the estimated price for your business or not.

Perhaps, you intend to sell your business for $1-million. However, a sudden decrease in the market trends might undervalue your business.

Health issues

Besides, the biggest threat to a successful business sale is a health crisis. According to a survey, approximately 55-percent of those people who retired early than they planned did because of health issues.

The business must grow for it to get sold for the value you planned. Having health issues, you would have to retire early. Thus, reducing the worth of your business. So, it is important to take care of your health if you don’t want to retire early due to health issues. Set a schedule, do exercise daily, maintain work-life balance, and make a comfortable office desk setup as you have to spend a lot of time there.

Unforeseen financial crisis

The pandemic of 2020/2021 is a great example of how things are unpredictable. You never know when the world is going to turn upside down.

As a small business owner, you may come across a financial or domestic crisis that requires immediate measures. Imagine having to sell your business, which was your only retirement plan.

Well, this is why you should take the better road and secure your future using the wiser means. Below, we have compiled some great small business retirement ways!

Calculate Early

What do you remember about the preparations you made for the business that you currently run? We bet there were loads of calculations and estimates. Perhaps, you may have even devised a complete plan for dealing with potential risks and management of the workforce (if any). Well, planning for retirement works the same way.

For envisioning a stable retirement era, you need to plan it thoroughly. Be it the potential risks, i.e., huge expenditures (such as that of health) to extravagances (such as vacations) and necessities. You must make realistic estimates by calculating your expected expenses as per desired or expected lifestyle.

We understand this can be a rather demanding task, especially for those who are Math majors. Hence, we recommend the use of free online retirement calculators and worksheets. Usually, most reputable financial firms offer such convenient financial tools.

Plan an Exit Strategy

Next, determine what you will do when it’s all over. What will you do when you can no longer tend to the daily activities of the business? And none in your family is ready to take up the big responsibility?

Technically, you can either plan to pass down the ownership to a trusted and deserving employee or sell your business to investment companies. In both cases, you will receive ample resources for your retirement period.

However, note that designing an exit plan isn’t as simple as stated above. It will require loads of homework. So, we advise you to plan it to avoid any panicky moments and impulse-driven non-profitable decisions towards the end.

Consult a Financial Advisor

Some people prefer consulting a financial advisor for retirement, and some people prefer it during retirement or right at the beginning. It is much wiser to have a professional guide you through than none at all. Their knowledge and experience can help us avoid unnecessary losses and financial crisis.

Consider Retirement Plans

Investing in a retirement plan is the safest and the most effective of all methods. You don’t have to spend tons of money, but you do get them by the retiring age.

Some of the best retirement plans aimed at small business owners include:

Simple IRA

The Simple IRA plan takes pre-tax directly from employee paychecks. It is for small business owners with 100 or fewer employees.

Solo 401(k)

This particular plan allows you to contribute 25-percent of your compensation and an employee’s contribution ($18,000 to $24,000). Altogether, the contribution must not exceed $53,000. If your spouse works with you, then he/she can also contribute the same amount.

Simple 401 (k)

The simple 401 (k) is similar to a simple IRA plan. You must have 100 or fewer employees that can contribute up to $12,500.

However, in this plan, you and your employees can borrow the money. They can also make penalty-free withdrawals if experiencing a financial crisis.

Invest Elsewhere

Security systems, computers-there a lot of things in which small-scale business owners invest to keep it growing. However, these investments are all a part of your business. And, all of these will get sold along with the business.

When the time comes of selling the business, these things will hold minimal to no value. So, a wiser approach at making investments that yield later on will be to invest in anything other than your business. Perhaps, you could invest in a car, small property, jewelry, or anything that serves as an asset for the future.

Published by ExitAdviser


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