Tips for planning a retirement as a business owner

One of the reasons people enjoy starting their own businesses and venturing into the unknown as an entrepreneur is the sense of freedom it provides. A business is what you manage to make of it. However, there’s a downside to such freedom and it’s mostly in the lack of security.

This is most noticeable when it comes to long term stability and planning for your retirement. For most employees, that’s handled by their employer and this is where a business owner needs to take care of themselves.

Run your numbers

The first thing to do is to run your numbers in terms of what you need to cover your needs and how these may change as your retirement age approaches. It’s essential to factor in the changes in lifestyle and inflation when doing so.

It’s also important to have in mind that a portion of your expenses is covered by the business itself, while you’re employed as its CEO. Try to figure out how much of these you’ll need to cover yourself, when you’re retired from the job.

Diversify

Try to look at your retirement plan as a form of investing since that’s what it is in essence. When it comes to investing in this way, it’s essential that you diversify your investments and make sure that your future income comes from a variety of source. It’s a hedge in case something goes wrong with one of them.

The diversification should also take into account how different sources of income are tax. You shouldn’t focus on one type of taxation either since the policies can change over time and you want to have your options open as they change and if they do.

401k

This is the most common way to save for retirement in the US, but it’s mostly oriented towards larger and more corporate businesses. However, this is starting to change and many 401Ks are offering a plan made for companies that have less than a 100 employees. Even these smaller plans come with financial experts to help you choose your retirement path.

At the same time, this means that a business owner you also need to be an employee of your company. This isn’t the case for all business owners and it can present a problem with mixing personal and company assets.

Keeping things simple

Investing can be a career of its own and most business owners don’t have the luxury of starting another career while running their company. That’s why it’s best to keep things simple when it comes to the low cost fund used to prepare for the retirement. It’s best to use and mix and match 3 most common funds.

-An index fund that invests in the entire U.S. stock market
-One that owns developed foreign stock markets
-Index fund that owns the broad U.S. bond market.

All of these are simple to use, but provide a diversity of income source as you prepare to retire.

Hiring an expert

There are experts out there that work in this area alone, meaning only on preparing people for their retirement. It’s an additional expense to make since they aren’t always cheap, but that’s the price to pay of you want to be sure about your future, at least when it comes to finance.

For the most part, it’s best if the person you’re hiring for this job is a financial planner and if they are Certified Financial Planner so that you know they are reliable. There are plenty of places to look for them online, and word of mouth helps as well.

Start early

In the end, it’s important to remember that it’s never too early to start a retirement plan. It may seem like the retirement is far away and that can even be the case, but you should prepare as soon as you’re able. This means that if you have a steady stream of income you should dedicate a portion of it, to the retirement plans.

It’s up to you to decide how much of your income you want to use for retirement right away and that mostly depends on how much you make, do you have debts, and how old you are.

Conclusion

A business owner needs to plan their own retirement since most of their assets and their income are tied with that of the company itself. That’s why you need to set up funds and invest in a retirement plan early on and thus allow yourself to step away from the business when you’re ready to.

It’s useful to have a help of financial advisor when doing so and to have more than one source of income for your retirement in order to diversify it.