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Small Business Owners: 6 Tips to Help You Retire

Updated on January 17th, 2022
small business owners

Many retirees admit retirement sneaks up on them. That problem could become even more prominent for small business owners who feel they need to focus on the here-and-now aspects of making their companies succeed more than anything else.

A 2019 survey found that 34% of small business owners don’t have retirement plans. The research also confirmed 40% of respondents did not feel confident about their ability to retire before age 65.

Even if you don’t plan to leave the workforce for decades, now is a great time to start thinking about when you’ll transition from small business owner to retiree. Here are six tips to get off to a strong start when considering your retirement needs.

How Can Small Business Owners Retire?

1. Hire Professional Guidance

Choosing a financial expert to steer you through retirement is a smart move. It can become overwhelming to look at all the available options and wonder if you’re making the right decision to match your requirements and situation. Perhaps you’re also facing additional challenges related to operating your business during the COVID-19 pandemic.

A November 2020 poll found the novel coronavirus negatively impacted revenues for 87% of business owners. However, 85% of those affected did not change their retirement plans due to COVID-19. The results also showed that 61% of people who own companies have financial advisors.

No matter what stage of retirement planning you’re in, a financial expert can help you pick the best action plan to achieve your future goals. They’ll look at various specifics, such as the current state of your business and whether you’ve saved anything for retirement yet.  Then, your advisor will give ongoing suggestions based on how things with your company and goals evolve.

Getting set for retirement can seem overwhelming, especially if you’re in the early stages of doing that. A significant benefit of getting professional advice is that you’ll have the support of an individual or team that has helped many other people in similar positions to yours.

2. Calculate Your Estimated Living Expenses During Retirement

Statistics indicate that it will cost $1,120,408 for the average American to live a comfortable retirement. However, the figure can vary drastically depending on the region.

One commonly cited rule of thumb is to plan on needing 80% of your pre-retirement income in today’s dollars. If you plan on traveling frequently, it’s a good idea to set aside more. However, some small business owners may need less, particularly if you want to live more simply as a retiree or move somewhere with a significantly lower cost of living.

Estimating how much money you need to live the life you want as a retired person is a wise step to take in retirement preparedness. Think about factors such as:

  • The city, state, or country where you’ll ideally retire.
  • Any medical issues or risks that could elevate costs.
  • How your current life compares to your retirement vision.
  • Whether you may occasionally work while retired.
  • Homeownership costs where you’d retire.

You can find numerous retirement calculators online that help users get a handle on the specifics of potential living expenses. However, if you have a financial advisor, they’ll give you more personalized information and alert you to how things might change between now and retirement.

3. Monetize Your Data to Boost Profits

Small business owners can also start making purposeful changes in their business strategies to achieve more profits. Once that happens, it could help with your retirement plans.

One excellent option is to monetize your data. There’s probably more of it available to study than you realize. If you need more, customer questionnaires can be useful starting points.

Consider digging into data to determine when to engage your customers and urge them to stay on your website. Perhaps you have an e-commerce site, and data shows that people spend an average of 10 minutes browsing it. You could use that information to influence your creation of a chat box that pops up after six minutes and asks if people need help.

Doing that may eliminate any doubts visitors have because it gives them a way to immediately ask questions and feel confident about purchasing. Another option is to examine data to determine what types of ads or site layouts should get the best reaction from customers. You could then create multiple site versions and see which ones get the results you want.

Data monetization is an excellent way to strengthen your business and become more familiar with what customers need. Those goals are not specific to retirement, but they could support any aspirations you have for when it’s time to retire.

4. Diversify Your Investments

You’ll ideally have several paths to reaching your retirement goals. For example, many people invest in the stock market. Another widely utilized possibility is to get enrolled in a retirement plan.

Those often allow both you and your employees to contribute money to them. The main types are:

  • SIMPLE IRA: You may also know this option by its longer name, the Savings Incentive Match Plan for Employees. It allows both employees and employers to contribute to a traditional IRA. You qualify if your company has 100 employees or fewer or if you operate as a sole proprietor.
  • Simplified Employee Pension (SEP): This is another retirement plan where both employees and employers can contribute. There are no requirements to have a certain size or type of business before setting up a SEP. A small-business owner is an employee under SEP, and they contribute to their employee accounts.
  • ROTH IRA: Some primary benefits of a ROTH IRA are that your investments grow tax-free, and there are no taxes on withdrawals made during retirement. However, your contributions are not tax-free.
  • Solo 401(k): This is a retirement investment type for small-business owners without employees. It allows you to contribute as both an employee and employer, but there are maximum amounts permitted under each type. The total contribution allowed in 2021 is $58,000. However, if you are 50 years of age or older, the rules allow making an extra $6,500 catch-up contribution.
  • Traditional IRA: A traditional IRA permits small-business owners and employees to invest money into them before taxes come out of their paychecks. Any such contributions get deducted from their taxable income, which means they’ll pay less in taxes.

Both pros and cons exist for all these options. Thus, it’s crucial to take enough time to figure out which one is the best for you. Similarly, if you’re a sole proprietor and don’t expect that to change, such a status makes you eligible for a solo 401(k).

5. Deal With Your Debt as a Small Business Owner

Unaddressed debt can stifle small business owners’ retirement plans. However, it’s rare for business owners to be debt-free. That means you shouldn’t feel ashamed or scared of debt. Instead, come up with a practical plan for gradually tackling it.

Start by creating a written record of all your business expenses and debts for a given month. You may think you have a clear idea of the company’s status, but it’s often challenging to gain an accurate perspective without putting it all down on paper. You can then consider how much money exists to use to pay off the debt.

Next, look at all your debts and prioritize them by interest rates. High-interest rates can become more problematic than many people realize. Thus, without becoming familiar with your debts, you may get the impression your retirement savings are going better than they are.

Consider how you could become less dependent on credit cards, too. For example, having four credit card accounts as a business helps you maintain a positive credit history. However, evaluate if you should close some accounts after paying them off. Consider transitioning to different ways of paying for things, such as by using cash or checks.

6. Consider Your Exit Plans

You have various options for leaving the business when it’s time. Some company owners transfer the business to an existing employee, while others sell to investment firms. Liquidation can be one of the fastest options. However, it also has the lowest return on investment for the owner. That’s because the only value comes from the sold assets.

Another possibility is to sell the business to a competing company that’s ready for an acquisition. This option can become very profitable for a current owner, but the risk is that the acquiring company may fold your business after it owns it.

Whether you’re strongly thinking about selling your business down the road or want it to continue under the ownership of someone else, now is a great time to look at ways to grow the company and address any weaknesses. Growth now can turn into profits later, making the business more appealing.

Moreover, you can take the time to fix anything that could make the business harder to sell if you’re going that route. For example, poor financial records or too much revenue fluctuation can make a company harder to sell.

Start Your Small Business Retirement-Planning Process Now

When you’re a small business owner, it’s often difficult to prioritize something solely related to yourself — such as your retirement. It’s understandable to want to put your time and energy into helping the company succeed. Indeed, doing that can simultaneously assist your retirement strategy.

However, take care not to focus so much on your business that retirement takes a back seat. The six tips here can help you assess your current situation and retirement outlook. From there, it’s easier to decide on the best path forward for reaching your goals and looking forward to retirement.

Whether you plan to retire several decades from now or significantly sooner, it’s never too early to start thinking about that life phase and how to get enough money for it.

Devin Partida

Devin Partida

Devin Partida grew up in the San Francisco Bay Area, where the booming tech and startup scene nurtured her curiosity. Always an avid writer in her younger years, Devin began covering the tech industry for ReHack in 2019, and has since become the young brand’s Editor-in-Chief. When she isn’t writing, Devin enjoys biking around the Golden Gate Bridge, eating hand-crafted ice creams and listening to true crime podcasts.

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