No matter how much you enjoy your work, there's likely a part of you that looks forward to retirement or at least wonders what it will be like when the time comes. There's a lot to consider, especially if you own a business, and the more thought you put into this the better you'll fare as the big day approaches.
It's never too early to start planning
Even if you've just begun running your business, you'll be doing yourself a great service by planning accordingly so that when the time comes, you have not only the means to retire, but an exit strategy and an idea of how you want to spend your post-work life. Even if you intend to live modestly, setting up the right retirement account can help give you peace of mind. Think of your retirement fund as a security blanket that will be there when you truly need it, and keep adding to it as time goes by for your best chance at a happy retirement.
Figure out how much you'll need
You can tell yourself you'd like to live modestly or you can plan on living it up when the time comes, but your ability to live either way will be directly tied to how much money is available. As you make your plans, you should also make some calculations. It's virtually impossible to figure out an exact amount of money you'll need, years or decades in advance, but if you can picture the life you want and apply rough estimates for what it will take to achieve that, you'll be in better shape in the long run. Consider living expenses, travel and entertainment, and aging-in-place scenarios. Do you expect health concerns to be a problem as you age? All of this should factor into the dollar goal you set for yourself.
Hire an advisor
You’re an expert about your industry or profession and about the best way to run your company, but that doesn’t mean you know everything about the best financial plan for your future. Chances are that retirement planning isn't your area of expertise, and that's okay. It's not necessarily the easiest subject to grasp when it comes to the intricacies of different types of plans and investment strategies.
Hire a professional who can help you set up a plan to achieve your financial goals. Be open and honest with them about your business finances so you can decide together how much company profit you might be able to set aside for savings and a retirement plan. Then develop a long-term relationship so they can help you adjust your plan as your business evolves and your personal circumstances change over time.
Don't forget a succession plan
When you're planning retirement, you certainly want to make sure you're leaving your business in good hands, and that's why it's important to develop a succession plan. While your strategy will depend on a variety of factors related to your particular line of business and personal situation, here are guidelines to follow.
The Small Business Administration recommends following SCORE's five steps to succession planning1: choose your successor, develop a formal training plan for your successor, establish a timetable, prepare yourself for retirement, and install your successor. As you're planning, make sure to identify the business's important functions and let your successor spend some time getting used to these before you step away. This will ensure a smoother transition and help your business thrive as you enjoy your retirement.2
Or do you plan to sell?
Perhaps rather than a succession plan, you simply intend to sell your business.3 It's wise to plan the sale of your business well in advance of actually trying to sell it, and, therefore, well ahead of your retirement.
Karen Samms at the National Federation of Independent Business says, "As you approach retirement age, it’s important to have a realistic idea of your business’ value, especially if you plan to sell. Seek consultation with a valuation expert to determine a realistic selling price, and give yourself enough time to make changes if it falls short of your retirement needs.”4
Entrepreneurs are risk-takers by nature, but failing to plan for your retirement is a risk you shouldn’t take. Don’t put off asking for financial advice5 – your future self will thank you for it.
2. Click here for a NevadaSmallBusiness.com article on succession planning.
3. Click here for a NevadaSmallBusiness.com article on preparing to sell your business.
5. For more information and resources, please visit www.nsbank.com/financialplanning
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.