As small business owners, we tend to think better days are ahead for our business. We just need to make a little bit more revenue, than we will start our retirement. This line of thinking is a pitfall. We get into a money trap that no one wants to be in. A lot of small business owners think their retirement is selling their business. This might work for some businesses; they might be able to sell their business for enough money that they could retire. The majority will need to think of another strategy. In this blog, we will discuss four great retirement tips for a small business owner to have enough money to retire. If you are not saving for retirement or saving less than 10% of your income, then I would recommend you see a CFP (Certified Financial Planner).
1) Run your numbers!
You would be amazed at how many small business owners have never run their numbers. You would need to know how much you have for retirement and how much you would need to retire on. By running your numbers, you need to know how much you are currently saving and how much more you need to save to hit your retirement goal. You need to know how much your expenses are and project what your expenses will be. For example, will your house be paid off before you retire? You also need to project the inflation rate. I know that Fidelity, T. Rowe Price, and Vanguard offer free online retirement worksheet and calculators to help you see future expense. I would also recommend any small business owner to have a good financial planner in their corner.
2) Diversify your retirement!
Diversifying your retirement is a must for your retirement planning, especially if you are one of those small business owners that believe selling your business will make you be able to retire. A recent survey was done showing that only 13% of small business owners believe their business is worth more than one million dollars. If their business was sold today, 55% believe their business could be sold for less than $500k. If you are betting on this, you are putting all your eggs in one basket. Another survey showed that 55% retired earlier than planned due to health issues. Therefore, you would need to diversify your retirement because you don’t know what will come up in the future that will affect one of your retirement silos. The following are different avenues one might consider for their retirement portfolios: SEP-IRA, Simple IRA, Solo 401(k), Simple 401(k) and Roth IRA.
3) Automation is key!
Sometimes placing funds into a retirement avenue is hard to swallow when you place a large amount into retirement every once in a while. It is easier to swallow when you set up automation and the amount is consistent. You start to lower your expense and start living off your new income. You will be able to feel comfortable knowing that you will have enough money to retire and you can live off less expense while making your retirement fund stretch longer. The main reason automation deposit into your retirement is key is because you will receive a steady income that doesn’t include the retirement deposit, so you can get used to living off less money and know how to stretch your funds.
4) Having an exit plan!
Starting a business is stressful enough! You might not want to think about what your exit plan is while you’re starting your business. You need to have an exit plan to know when you would like to retire and at what price you would be willing to sell your business. You can’t be thinking of your business the same way when you started your business or if you are 65 years old. Life events happen and your business changes too. One needs to know how and when they can retire from their business ventures.
The four tips above help small business owners start thinking about retirement and to help them know that they are not alone. There is a lot of small business owners that don’t save 10% of their income for retirement or don’t save any money for retirement at all. If you are wondering if you are on your mark to retire, we would suggest you speak to a certified financial planner that can assist you in which avenue you should take. Here at Flat Top Bookkeeping, we enjoy helping and seeing everyone achieve what they desire. Please share with us your stories and different tips that help you get on the right path for retirement.