It’s never too early to plan for the future, especially when it comes to retirement. As a business owner, you may be thinking about your retirement plan—but when you’re funding and running your company, you may not know where to begin.
As top industry leaders, the members of Forbes Finance Council know the ins and outs of personal retirement planning. Below, they share 14 important things business owners need to remember when coming up with a retirement plan.
1. Don’t count on your business equity as your retirement.
The business you have today could look a lot different tomorrow, especially in these uncertain times. A lot of business owners believe their business equity will keep increasing, and all they will have to do is sell and they’ll be set. “Tomorrow equity” is promised to no one. Also, realize that retirement planning isn’t just investment allocation. There are lots of ways to tax-efficiently fund your retirement with real estate, life insurance and even cryptocurrency. That often gets business owners more intrigued about retirement planning. – Jeff Root, Rootfin, LLC
2. Know the purpose of your retirement plan.
Ask yourself: What is the purpose of your retirement plan? Is it a retirement plan for you? A tax shelter? A tool to attract and retain employees? These aims are not mutually exclusive. What’s your time horizon? How much longer will you work? How much money do you need to retire? Where will you live in retirement? What is your budget, and what are the tax ramifications of putting that money away? – Ronald Stair, Creative Plan Designs, Ltd.
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3. Focus on strategic tax planning.
The journey to retirement planning may appear daunting when viewed from a traditional perspective. Many use retirement planning as a way to cut taxes. A reverse approach may be equally beneficial. Use tax planning as a way to fund retirement. Minimize your tax liability through strategic tax planning and use the excess cash to fund your retirement. – Karla Dennis, Karla Dennis and Associates Inc.
4. Identify and plan for your succession goals.
The transition of a business owner into retirement is likely the biggest financial and personal transformation for an individual. It is important to work with professionals who provide expertise on tax consequences, insurance opportunities and personal financial planning prior to and through retirement. Identify goals around the succession of the business and how you want to spend time in retirement. – Ryan Hauber, Honkamp Krueger & Co., P.C.
5. Save like a non-owner.
I err on the side of conservatism when planning for a business owner’s future. It’s in their best interest to save like a non-owner—meaning maximizing contributions into retirement savings vehicles. Consider proceeds from a business sale as “extra.” Often owners don’t plan early enough for liquidation or a sale of their business. That is also key, and it starts years before the business is sold. – Matthew Cuplin, Midwest Financial Group
6. Establish metrics for the business.
It can be incredibly difficult for business founders to distinguish personal success from the success of their business, as the two are inextricably tied. To take emotions out of financial planning for both personal goals and business goals, establish metrics for the business that allow you to rely on the data alone. This provides a dashboard that can support the financial goals of both you and your business. – Sonya Thadhani Mughal, Bailard, Inc.
7. Invest in non-correlating assets.
I would recommend investing personal retirement funds in non-correlating or even negatively correlating assets. For example, an oil-production business owner should not invest in oil but should rather invest in airlines that are doing well when oil prices are low. Or I would recommend investing in electric cars and trucks, as this is another factor pushing oil consumption down. – Azamat Sultanov, Fortu Wealth
8. Get a business appraisal.
Most entrepreneurs pour personal wealth back into their business. They think this will make the business more valuable for a future liquidity event. But in my experience, owners rarely get an appraisal from a qualified expert. This means their retirement plans are based on assumptions, not financial facts. Getting a business appraisal is crucial to establishing a realistic retirement plan. – Mia Erickson, Whitnell
9. Fairly compensate yourself.
Make sure that you are fairly compensating yourself. It is important to reinvest and help grow your business, but you also need to make sure you are taking care of yourself. If you have additional cash flow and feel that you have adequately reinvested back into the business, it is okay to take a draw and put it aside for retirement. – Jonathan Moisan, Advertise Purple
10. Plan as if your business has no exit value.
Don’t bank on the sale of your business to fund your retirement. It’s too far away, and industries and valuations can significantly change from what they are now. Plan for your retirement as though there is no exit value for your business. Save and invest accordingly and you will have the freedom to sell, leave or retire from your business based on your savings, not a liquidity event. – Aaron Spool, Eventus Advisory Group, LLC
11. Explore company retirement plan options.
Company retirement plans have more flexibility in design than most people realize. Meeting with a qualified expert in the retirement plan space allows a business owner to communicate the specific needs and goals of their business. In doing this, the retirement plan representative can take these individual items into consideration and custom-tailor the plan to their unique needs. – Will Duffy ChFC, RICP, EA, WD Wealth Strategies
12. Contribute consistently.
As someone who opened her first retirement account at the age of 20, I always emphasize the power of contributing to your account consistently. Even if it is not a significant amount of money, over time it makes a huge difference. Analyze your current situation and pick an account that will give you the most benefits based on your income. Most people choose a SEP-IRA so they can save on taxes now. – Gabriela Berrospi, Latino Wall Street
13. Consider the size of your business.
Create a plan that works for the size of your business. While some small-business owners may not think they have enough employees to offer a retirement plan, there are options specifically created for small businesses—some of which go as far as to offer access to financial planners. Even if you are an owner-only business, you can still have a 401(k). – Jared Weitz, United Capital Source Inc.
14. Fully understand your current situation.
A business owner must understand their current situation and what they are looking to accomplish by setting up a retirement plan. For instance, a sole proprietor who’s also the only employee may be best served by a Solo 401(k), whereas a SEP-IRA would be better suited for a business owner with employees looking for simplicity. You can find the right retirement plan based on your goals. – Stacy Francis, Francis Financial, Inc.