How successful business owners plan for retirement

How successful business owners plan for retirement

If you’re like many business owners, you get caught up in the day-to-day operations of running your business, and setting aside time and resources to plan for the future becomes easy to postpone. Additionally, you may see your business as your best retirement investment, and any additional revenue you have may quickly be reinvested back into your business.

What other successful business owners have learned, however, is that planning for retirement shouldn’t be postponed, even if your business will be the primary asset for generating retirement income. Simple steps you take now can be critical to maximizing the value you receive from the business you built.

Crunch income numbers, not account balances

How will you know you’re ready for retirement? It’s not about reaching a magic total balance in your retirement savings accounts. Rather, it’s about having a plan in place where you can confidently and predictably replace your income in retirement, and having a strategy that helps protect you from factors like inflation, market volatility and unexpected expenses that may arise (like a hospital bill).

As a business owner, your monthly income and expenses and how they compare to what you’ll experience in retirement might be a bit more complicated for you than the average person. That’s because for many business owners there is an understandable financial overlap between their work lives and their family lives.

For example, the vehicle you drive for your business and claim as an expense may be the same vehicle you use for your family’s needs. Or, the tax rate you currently pay on income as a small business owner may be very different from the ordinary income tax rate you’ll pay from an IRA’s proceeds.

These factors can skew how your current financial circumstances will compare to those you’ll experience in retirement.

Think about your exit strategy

Since your business is your biggest investment, it’s never too soon to start thinking about (and planning for) how you intend to convert your ownership interest into a source of retirement income.

For some owners, that means a sale and a clean break from the business. For others, it looks like a gradual transfer of ownership through a systematic buyout. Or, it could mean retaining ownership during retirement and paying others to run the business on your behalf.

Though plans are always subject to change, thinking about your exit strategy for the future will likely impact how and where you invest your resources today.

Build flexibility into your plan so that you can sell the business on your terms, and when the time is right. Without it, a change in circumstances – like a shift in market conditions, or sudden disability – could force you into a distress sale, quickly eroding the value of the business you worked hard to build.

Getting an early start on outlining a succession plan, identifying potential buyers, and identifying contingency plans can also provide helpful stability and strategic clarity for your business. 

Choose the right planning tools

While your business can be an important source of retirement income, it shouldn't be the only one you’re relying on. Like any investment, a business has risk, and is subject to volatility in its value and ability to produce consistent income. That’s why it’s important to diversify and set aside a portion of your assets in other retirement savings tools.

Simplified Employee Pension (SEP) and Savings Incentive Match Plan for Employees (SIMPLE) IRAs are common options small businesses owners use for retirement savings. You may also look to set up, and participate in, an employer-sponsored retirement plan like a 401(k).

Insurance products can also be a surprisingly powerful way of balancing out risk while still providing growth opportunities. Permanent life insurance with cash value, for example, provides death benefit protection and can serve as a tax-advantaged source for supplemental retirement income and chronic illness benefits.

Partner with a professional

Here’s where a bit of guidance from a financial professional can help, because the size, structure and stability of your business, as well as other factors, can impact which options are the right fit for your needs. Plus, changes in your business or the external environment (example: tax reform) might create new opportunities that can be leveraged, or new risks that need to be managed.

Perhaps the greatest benefit, however, is that by partnering with a professional, you can focus on what you do best – running your business.

Products issued by The Ohio National Life Insurance Company and Ohio National Life Assurance Corporation. Registered products distributed by Ohio National Equities, Inc., Member FINRA. Product, product features and rider availability vary by state. Guarantees are based upon the claims-paying ability of the issuer. Issuers not licensed to conduct business in New York. Withdrawals and loans may reduce the death benefit, cash surrender value and any living benefit amount.

This provides general information that should not be construed as specific legal or tax advice nor the law of any particular state.  Please seek the advice of a qualified legal or tax professional for your specific situation.