Entrepreneurs are risk-takers by nature. Starting your own company and managing it through good times and bad can be challenging as well as rewarding. However, not preparing for retirement is a risk that business owners simply can’t afford to take.

A recent survey1 of 400 business owners revealed that 75 percent of them had saved less than $100,000 for retirement, and many are counting on their company to provide all the income they need in their later years. Self-employed individuals surveyed expected to work till they were 72.6 years old. These statistics point out a number of risks: What happens if the business owner encounters health problems and has to retire early? What if the business fails?

Set Yourself Up for Success

The first step toward increasing your chances of having a comfortable retirement is to assess your current situation, and it’s best to do that with a trusted financial advisor. You’re an expert at running your business, and probably invest a lot of time, money and thought in planning how to make your company the best it can be. This may not leave much time to research and prepare a retirement plan. For that, you need someone who’s an expert in that area.

Together, you and your advisor can answer some vital questions:

·        How much money will you need in retirement? Many factors affect this calculation, including lifestyle choices, where you’ll live, and your family situation.

·        How much do you have invested outside your business? What income is it likely to provide over the course of your retirement years?

·        What is the current value of your business? How much would you receive if you had to sell it quickly? If you keep a percentage of your business when you retire, how much income would it provide?

Once you have those numbers on paper, you’ll have a clearer picture of your situation. Next, you and your advisor can develop a plan to help you reduce your risk level and maximize your income in retirement.

Here are a few things to consider:

Your plan should be diversified. Most of us are familiar with the concept of asset diversification (not putting all your eggs in one basket) to help reduce risk over the long term. Even if you are careful to balance your investment portfolio between stocks and bonds, long-term and short-term investments, etc., you may still be relying on one company (your own) for the bulk of your retirement income. This can leave you vulnerable if your business fails for some reason. Your advisor can work with you to develop a plan that balances investment in your company with investments in other areas.

Several tax-advantaged retirement plans are available for business owners. You may think that 401(k) plans are only for large businesses, but the truth is that even sole proprietors or mom-and-pop companies can set them up. In addition to the basic 401(k) plan, which is designed for companies with a large workforce, three other plans are available for smaller companies: Self-Employed 401(k) Plan, Simplified Employee Pension Plan (SEP IRA), and Savings Incentive Match Plan for Employees (SIMPLE IRA). Each of these plans has different qualifications and annual contribution limits, and your advisor can work with you to determine which plan is best for your particular situation.

Plan your exit strategy now. Even if you don’t plan to leave your business for many years, it’s usually best to develop a plan for your company’s future long before you’ll actually need to implement it. If you plan to eventually sell your company and use the proceeds to fund your retirement, look for ways to maximize its value now. If you plan to pass it on to a family member or an employee group, start working on agreements to determine how your ownership will be transferred.

Don’t procrastinate. Once you have a better idea of your current financial picture and you have put a plan in place, start working toward your goal of setting yourself up for a comfortable retirement. This may involve earmarking some of your company profits for your retirement instead of rolling everything over into the business. It may include looking for ways to cut down on personal expenses so you can maximize contributions to your retirement plan. Whatever you decide, the sooner you begin, the more time you’ll have for the assets in your portfolio to grow.

Don’t put it off – make an appointment with a financial advisor today to discuss a retirement plan that works for you and your business.


1. https://www.bmo.com/privatebank/pdf/bwm_report_business_owner_retirement.pdf


For informational purposes only; not intended as tax, business or legal advice. Consult with a specialist for information related to your individual facts and circumstances.