The average retirement age in the United States is 61 years old for men and 62 years old for women. For many people, these are the golden years of life, where they can enjoy their time with family, hobbies, and vacations. But not everyone has saved enough to retire comfortably.
The good news is that you’re not too late to save for your future retirement. This is especially important as small business owners generally work at least another year past the average retirement age of their employed counterparts.
Whether or not retirement is a long way off for you or you are close to retirement age, there are ways to prepare yourself and your business before the time comes. The following methods will help you do just that.
Why Small Business Owners Need to Prepare For Retirement
Many small business owners have not saved enough for retirement. This is because they are still building their business, which may take years or even decades to succeed. Owners who are just starting may mistakenly believe that they don’t need to save for retirement now as they will be able to retire with the savings from their business later on.
But this is not true, as it can take several years for a business to grow and even longer for the owner to reach the point of financial independence.
Even if you are an established small business owner, you may be unprepared for retirement. While you might have some savings in your 401K or other retirement accounts, these may not be sufficient enough to provide adequate income once you stop working at your current job. A recent study by UBS found that 20% of Americans have no retirement savings at all.
Prepare A Business Exit Strategy
A business exit strategy is a plan for when you plan to retire from your company. It should address all the important steps, from finding a successor to transitioning the company. Ideally, it would be best if you had this plan in place before you retire so that your company will continue operating smoothly after you step down. Speaking of successors, one of the most critical steps in any business exit strategy is to find someone suitably experienced and qualified who can take over for you. But don’t rush into it blindly. Find someone with the right skills and qualities for the job, then lead them through training and mentorship so that they’re ready to take over.
Choose The Right Retirement Plan
There are numerous retirement plans available for small business owners that are not available to employees of larger corporations. Each plan offers a degree of flexibility in terms of who contributes, how much is contributed, what types of assets are eligible for inclusion in the plans, and when you can access the plans. Small business owners can determine which retirement plan is best for them by considering these and other requirements and consulting with a financial advisor to examine the terms of each potential plan.
Appraise The Value of The Business and Assets
Before you retire, it’s essential to do a financial assessment of your business and assets. Firstly, you need to examine your business and the value it holds. Consider what type of buyer would want your company. Does it have anything special that other companies don’t? Are there any patents or trademarks?
You should also look at the value of your assets, such as physical property. Are there any valuable pieces you could sell off before retiring? You may want to consult with a financial planner to help you evaluate the value of your business and assets.
401k, IRA, and Investments
There are many retirement instruments, but some are better than others. For example, small business owners’ best retirement savings account is a 401k or an IRA. These accounts offer tax advantages that other investments do not have. For example, suppose you want to withdraw money from your IRA before age 59 1/2 without paying the penalty. In that case, you can do so as long as it’s used for qualifying expenses like buying your first home or qualified education expenses.
A Self-Directed IRA such as https://www.accuplan.net/self-directed-ira/investments/real-estate/ might be an attractive option for self-employed people because they can set up an individual retirement account on their own. Just consult with a financial advisor to make sure you are taking advantage of all the benefits that come with these accounts.
Investments also play an essential role in finding the best way to save for your future retirement because they help diversify your portfolio and minimize risk. Consider investing in stocks, bonds, real estate investment trusts (REITs), certificates of deposit (CDs), ETFs, and more, depending on what’s suitable for you and how much risk you’re willing to take on.
Finally, it’s worth considering whether you should take Social Security early or at age 67 when it will be fully available to you. Suppose the number of years until age 67 is substantial and your income is high enough so that taking Social Security earlier won’t lower its value significantly. In that case, it may be advantageous for you to take Social Security at 62 instead of waiting until 67.
Plan For What You Want Retirement To Look Like
The first step to preparing for your retirement is to plan for what you want it to look like. You should think about things like:
- What kind of lifestyle do you want?
- Where will you live?
- How much money do you need to live comfortably?
- Will you continue working in some capacity?
These are all critical questions that you should answer before your retirement. If these questions don’t make sense to you yet, the best thing to do is speak with a financial advisor or someone who can answer them for you. They’ll be able to help put together a financial plan according to your needs and wishes.
When you are in the throes of running your own business, it can be challenging to think about retirement. But you should. You need to have a plan, and when you do, your business will be much better prepared to take on the future.