There are 28.8 million small businesses in the U.S., reports SBA.gov. They represent 99.7% of all the organizations in the United States.
Sad to say, the majority of small business owners in our country have not set up a retirement plan.
The survey conducted in 2015 showed that 78% of business owners plan to sell their business in order to fund their retirement. The proceeds should fund from 60% to 100% of their retirement needs. However, less than 30% have written a succession plan until now.
People who plan to fund their retirement in such a way should understand one thing: if their business does not have a side job, they don’t have an employer who will take responsibility for coming up with a strategic retirement plan on their behalf. They will not get a pension as well. It means that they bare sole responsibility for setting up a suitable retirement plan. Such tailor-made plans should fit their exact requirements and needs.
However, it is easier said than done. If a small business owner does not know all the nuances of the retirement plan, it will be difficult to understand which moves will benefit him/her. So that lots of retirements look through the emergency loans to cover their needs. If you are in a similar situation, our guide can help you decide on the next step.
Face Your Fears
Ask any business owners about the fears they have, and they will give you common answers. The most widespread ones are fear of running out of money in the future, getting an ailment that destroys their savings, or understanding that monthly income during the retirement will not be enough to live a good life.
That is why it is essential for small business owners to face the fears they have in advance and make a plan to find a possible solution. If you want to face your fears, the first step to do is to realize what sum you’ll need to live comfortably when retired.
Do the Calculations
Keep in mind that you will not have a business that will be able to handle certain expenses. You can take advantage of retirement worksheets or calculators online to help you handle future costs.
Create a Good Exit Strategy
It may seem slightly premature to create a business exit strategy. However, your business is probably your best asset. It is possible to use it in order to fund your retirement and also stop working. Yet, to do this, you should liquidate investments. It is not easy to decide on selling off your business. However, consider this variant to help your business find its own bearings. It is also essential to find the right buyer.
It will depend on the state of the market if you are able to sell the business for the best price, but all eventualities will need provisions anyway. You can create a retirement plan that will be flexible enough to sell off your stake until the market is strong or continue working in case of succession. The main thing is that you must not agree on sale distressing no matter what happens.
Save Enough to Have a God Retirement
The future is always uncertain. The more money you save, the more comfortable you’ll feel during retirement. To reach this, you should leave money aside when working. Consider it as an investment in your future. A successful retirement is defined by a couple of factors, but the key one is your total savings. Try your best to accommodate a certain amount into your budget for a month.
Consider Growing Your Business
TD’s survey has indicated that 57% of small businesses are sole proprietorships. It means that the owner gets a self-earned income. If you aim at selling your business, you should grow. Note that sole proprietors do not sell. It is like purchasing a job instead of having a business.
If you would like to increase your business value, add employees and increase revenue. It will make you more strategic in business management.
If your company is well-grown, you can get 50-70% of the value of assets and a buy-out.
Choose the Retirement Strategy
Any small business owner has a few options for a retirement plan available. It is essential to know what they propose to make a wise decision. There are three various types of tax-deferred retirement plans:
- SEP IRA is deciphered as Simplified Employee Pension. It is a personal retirement account that gets contributions both from business owners and employees that work for them. This plan is highly accessible because small business owners are not limited by the number of employees.
- SIMPLE (Savings Incentive Match Plan for Employees) IRA is the most popular retirement strategy. Employers contribute to both their savings and savings of their employees. Employees can make salary reduction contributions (either matching or nonselective ones).
- Solo 401(k) helps employees contribute a part of their salary to personal accounts. It helps employers contribute to employee accounts.
To decide which one is worth choosing, consider how much time is left, how much you are going to save if you really need to access these savings earlier than the retirement comes and how your employees should participate in this.