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Planning for Retirement: Small Business Owners Face Unique Challenges

Survey Says Few Small Business Owners are Planning Adequately

 

Small business owners are seemingly tireless entrepreneurs when it comes to building and maintaining a business, but they often forget to plan for their exit strategy. A survey by BMO Wealth Management confirms that startlingly few small business owners are planning for retirement adequately.

The survey by BMO found that 75 percent of the owners between ages 18 and 64 had not saved more than $100,000 for retirement. The good news is that nearly 40 percent of business owners age 45 to 64 had at least started an IRA and nearly 30 percent had established a 401(k). For many entrepreneurs and small business owners, their way of planning for retirement is to invest in their business and sell it when the time is right. Essentially, the business becomes their retirement plan.

In some cases, the business owner will wish to keep the business alive. Therefore, they transfer ownership to a family member and get a share of the future wealth in return, which helps to support their retirement. Unfortunately, this doesn’t always work out as planned. Different management methods, a jarring transition between owners, and/or the unpredictability of the market can wreak havoc on a business, potentially leaving the retiree with little or nothing for their retirement.

A number of business owners will say that if their planning for retirement hits any snags, they’ll simply delay retirement. While this seems like a fair way to approach retirement, plans made while relatively young and healthy can turn quite suddenly as we age and our health begins to fail. For example, a survey by the Employee Benefit Research Institute reveals that nearly 55 percent of people surveyed said they retired earlier than expected due to health issues.

What steps can you take in planning for retirement that can help protect your investments?

·         Diversify: Putting a set amount of money per month in a variety of investments is a smart move because you’re spreading out your wealth in several directions. As the market ebbs and flows, you’ll see the advantages of a diversified portfolio. Talk to your investment advisor about popular options, like an IRA or 401(k).

·         Specialize: Ask your investment advisor about retirement plans that are specifically for small businesses. For instance, a SEP-IRA, solo 401(k), or SIMPLE IRA.

·         Know What You Need: How many of your current expenses are lumped into your business dealings? You’re won’t have that luxury when you retire, so crunch the numbers to get an accurate estimate of what you’ll need on a monthly basis when you retire.


If you’re like most small business owners, you have few hours in the day to research retirement vehicles on your own. Talk to a fee-only professional advisor like our team at Family Investment Center. Since our founding, we’ve maintained a client-first, client-focused philosophy. Today, we welcome you at our table to learn more about what makes us truly unique among investment advisor teams.

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