5 Ways a Small Business Owner Can Save for Retirement
Even the most determined, healthy, hardworking, and intelligent person must retire one day. That’s just a fact of life, whether we like it or not. As time goes by, our physical and mental capacities change, and so do our priorities. At 30 years, your dream may have been to become a self-established, fierce entrepreneur, but at 60 years, you may want to sit back, relax and enjoy time with your loved ones. Or you may want to learn music, live on the road in an RV, or do something else that you have never had time to do.
Just like every other phase of life, such as getting an education or having a family, retirement also requires one to have a plan. For salaried professionals, planning for retirement is much easier and may require no planning. Your employer signs you up for a retirement scheme and every month, a part of your paycheck goes towards that fund.
But when you’re a business owner, you need to plan yourself. And the sooner you start planning, the better. We’re not saying that you should panic and set up a hefty retirement fund right away. But it’s something every self-employed professional needs to work towards slowly.
From researching retirement plans for small business owners to cautious financial planning, here are 5 ways entrepreneurs such as online business owners or small business owners can start saving up for retirement.
Think about your retirement goals
Instead of just shooting in the dark, goals help you work towards something tangible. Think about what the ideal retirement life looks like for you. When do you see yourself retiring? Take a number of factors into consideration, such as your physical health, financial situation, and the number of people dependent on you.
Next, think about what you want to do during your retirement. Do you still want to run your business, or do you want to stay off work and enjoy life? Where do you see yourself living, and what kind of lifestyle do you wish to have? You could enjoy a quiet retirement with your loved ones or embark on adventures you’ve been too busy to indulge in while working.
Whatever you decide to do in your retirement, remember that nothing is for free. Making such estimations might be the wake-up call you need to start planning.
Explore your options
Most countries offer government-funded pension plans which will cover your basic living expenses. You may also have opted for or automatically enrolled in tax-saving pension accounts if you were previously employed.
However, you must find out whether these are sufficient to fund the retirement lifestyle you have envisioned for yourself. Most likely, you will need to start investing in an individual pension plan to expand your retirement savings. Consult your bank to find out what kind of pension schemes they offer. You can even take the help of a financial advisor or your company’s accountant. Putting money away in your pension fund will also help you save tax dollars. You may also have access to retirement plan options for small business owners that the government or private financial institutions offer.
Have a business exit strategy
Selling off the business is a common retirement strategy employed by entrepreneurs and is risky. You need to consider several factors beforehand, and the earlier you think of them, the better. You don’t want to delay your retirement as that will largely depend upon your health at the moment. Similarly, your health might also force you into early retirement.
Start by having a succession plan in place. Who will run your business after you retire? It could be a family member, a partner, an employee, or a third party. You must agree with them on ways in which you will still make money off your business even when you’re not running it. Or you can sell your business and use the revenue to fund your retirement. You can also claim a fixed percentage of the gains over certain intervals.
You need to consider how much your business will be worth when it’s time to retire. Based on market conditions forecasts, you should do a regular evaluation of the market value of your business. That way, you will know how much you can expect if you sell and make other arrangements accordingly.
Set money aside diligently
Everyone aspires to set aside a significant percentage of their income towards savings. Business experts suggest that about 30-40% of your business income should go into your retirement fund. This feat can be hard for new or small business owners. Add to that the burden of other financial commitments like a home mortgage, student or business loan repayments, and this figure seems all the more daunting.
Don’t commit to a high investment if it affects your current savings. Instead, take a slow and steady approach, but focus on starting early. You can start with as little as 5% of your income and increase it by 1% every year. As your income improves, you can start making bigger moves. Instead of pressuring yourself, ease into it.
Invest for long-term returns
Another simple way to keep your retirement fund intact is to keep the temptation away. Look for investment options that only allow long-term withdrawals instead of those you can withdraw within a couple of years. Have a bouquet of mixed investments: short-term ones that you can access during contingencies or business expansions and long-term ones that you can set aside.
Examples of such investments include mutual funds, real estate, stocks, annuities, and long-term bonds. Long-term investments present the advantage of solid wealth building and higher compounded income. While you may lose a portion of your income depending on market conditions, the longer investment term gives you a better chance of recovery. Consult your accountant or financial institution to find the best investments for you.
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It’s never too early to start thinking about the future. Planning for your retirement in a meticulous, organized, and disciplined way secures that future. It gives you one less thing to worry about, and you can focus your energy on taking your business to greater heights.
We hope this article covers all you need to know about planning your retirement as a small business owner in 2022.