Research carried out by BMO Wealth Management indicates that most small business owners don’t have a retirement plan in place. They work in the assumption that selling their business when the time comes will fund their retirement. Sadly, this is not necessarily the case.
We are all living longer. Better healthcare means people often live for 20-30 years beyond the normal retirement age, which puts huge pressure on their savings and retirement funds. Without an effective retirement strategy in place, you could end up living on a shoestring, at a stage in your life when you really deserve to be comfortable and not worrying about money. In this post, we are going to look at some effective ways to make sure this happens.
Build a Retirement Savings Fund
It may sound like a no-brainer, but a staggering 75% of people aged 18-64 admitted when surveyed they had less than $100k in a savings pot. Older people tend to be better prepared, but nevertheless, we could all do more to put extra money away for retirement.
All business owners should be putting as much money as possible into a retirement fund. You may think the business is your retirement nest egg, but if the economy takes a dip or your business goes bust, your nest egg is effectively wiped out.
There is also the risk that a niche business is worth very little when you, the main driver behind the business’s success, retires. Many small business owners are the sole brand of the business. The success of the business relies on them being in charge. Handing over management of the business to a new owner, or passing on the baton to a family member does not guarantee continued success. If you can’t sell the business or you don’t have a family member to continue running the business after you step back, that leaves you with zero options.
Assess the Longevity of Your Business
Take a long, hard look at your business and decide whether it has a future without you at the helm. If you are the sole owner/manager and the success of the business is tied to you as a brand, selling the business could be difficult. Also, consider how much your business is actually worth in today’s market, and whether it is likely to grow in the next ten years, or for as many years as you have left before retirement. Lastly, if you have a succession plan in place, will you be able to draw a reasonable income from the business after you retire?
These are all important questions, so be honest.
Put Concrete Retirement Plans in Place
Think carefully about how much money you need when you retire and do the math. If you don’t already have a retirement fund in place, now would be a good time to set one up. Speak to a fee-only financial planner and explore the merits of different retirement funds. The more you can set aside, the better off you will be in retirement. A simple IRA may be the best bet for a small business owner, but take professional advice.
