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6 Ways Business Owners Can Prepare for Retirement Today

Business.com / Last Modified: July 2, 2018
Image credit: Fahkamram/Shutterstock

People who plan to fund their retirement by selling their business should understand one thing: They alone bear the responsibility of setting up a suitable retirement plan.

There are 28.8 million small businesses in the U.S., reports SBA.gov. They represent 99.7 percent of all the organizations in the United States. 

Sad to say, the majority of small business owners in our country have not set up a retirement plan.

A survey conducted in 2015 reported that 78 percent of business owners plan to sell their business to fund their retirement, with 60 to 100 percent needed to fund owners' retirement needs. Less than 30 percent of small business owners have written a succession plan.

People who plan to fund their retirement by selling their business should understand one thing: They alone bear the responsibility of setting up a suitable retirement plan.

The good news is there are many plans that fit small business owners' needs, but if you don't know all of the nuances of each retirement plan, it's difficult to understand which one will benefit you the most.

Below are six tips to help you prepare for retirement.

Face your fears.

Ask any business owner about their fears. The most common ones are the fear of running out of money in the future or getting an ailment that destroys their savings.

That is why it is essential for small business owners to face their fears and come up with a plan. The first step is to realize how much money you'll need to live comfortably on when you're retired.

Do the calculations.

Bear in mind that you will not always have a business that will be able to handle certain expenses. Take advantage of retirement worksheets or online calculators to help you plan future costs.

Create a good exit strategy.

It may seem slightly premature to create a business exit strategy. However, your business is probably your best asset. It is possible to sell it to fund your retirement. How much you get from the sale of your business depends on the market.

One other option is to create a retirement plan that is flexible enough to sell off your stake until the market is stronger, or you can continue working in case of succession. However, no matter what happens, do not agree to a distressed sale price.

Save enough to have a good retirement.

The future is always uncertain. The more money you save, the more comfortable you'll feel during retirement. Set money aside. Consider it an investment in your future. If you can spare $200 or $500 each month, set up an automatic transfer each month with your bank so those funds are automatically deposited into a retirement fund and you're not tempted to spend those funds. 

Consider growing your business.

Approximately 57 percent of small businesses are sole proprietorships. If you aim to sell your business, you should grow it now. Can you add more clients? Can you hire employees? Some of these steps can increase your odds of successfully selling your venture.

Choose your retirement strategy.

Any small business owner has a few retirement plans available they can choose from. There are three types of tax-deferred retirement plans:

  • A SEP IRA is a personal retirement account that receives contributions both from business owners and the employees that work for them. This plan is highly accessible because small business owners are not limited by the number of employees they have.

  • A SIMPLE (Savings Incentive Match Plan for Employees) IRA is the most popular retirement strategy. Employers contribute to both their savings and employees' savings. Employees can make contributions (either matching or nonselective ones).

  • A solo 401(k) helps employees contribute part of their salary to personal accounts. It helps employers contribute to employee accounts.

To decide which plan is best for you, consider how many years you plan to continue working, how much you will save, if there is a chance you might access those savings before retirement, and, if you have employees, if and how you want them to participate in saving for their retirement.

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