Many business owners link much of their identity and net worth to their company, making the concept of retirement seem far-fetched and, sometimes, completely unattainable. But we’re going to show you that with the right strategy, retirement planning is not only within your reach; it’s something you can be excited about.
Retirement planning boils down to two central planning methods: the money side and the lifestyle side. Each method requires immense thought, dedication, and planning for a well-rounded retirement plan you can count on.
Let’s look at how small business owners can approach the money and lifestyle sides of retirement planning intentionally.
The Money Side of Retirement Planning
Set Concrete Financial Goals for Retirement
The first step to planning for retirement is to set clear—and attainable—financial goals.
This process typically begins with finding your retirement “number,” but remember that everyone has a different goal. Your neighbor might want to retire at 55, while you may want to continue working until 65.
Working longer may mean you can achieve other larger financial goals, or perhaps you just love your work and don’t want to leave it behind. Whatever your reason, just remember that every small business owner has unique goals and values, resulting in different retirement timelines.
Once you decide on a retirement timeframe that works for you, it’s time to start thinking about what a business sale would look like. You will want to lay the groundwork for business valuation, the process of finding a buyer, and your goals concerning selling.
Do you want to choose a family member as your successor, or are you interested in having a current employee or partner take over? Think about who will be the right person to continue growing your small business.
Setting high-level goals today gives you time to take proper action to see those goals come to fruition.
Save Regularly In Your Company’s Retirement Plan
While working, take full advantage of your retirement savings plan. It may seem like a no-brainer, but with the heavy workload that business owners carry, retirement planning can get pushed to the side.
Whether your business has a SEP IRA, SIMPLE IRA, or 401(k) plan, aim to max out your accounts annually.
Build Up Your Retirement Savings Outside Your Company
Retirement savings extend beyond your company’s offerings.
To stretch your hard-earned dollars even further, invest in a health savings account (HSA) if you qualify. HSAs can help you save and pay for qualified medical expenses tax-free. You could invest the balance for future healthcare costs in retirement, reimburse yourself for past medical expenses, and more.
Outside of an HSA or 401(k), consider opening other investment accounts that aren’t tied to your business, like a Roth IRA and a brokerage account. Saving outside your company diversifies your investments and brings more balance and future strategic opportunities. It also relieves the pressure on the sale price of your business.
But before diving in, create a diversified portfolio and understand your risk tolerance, risk capacity, time horizon, and goals for these outside investments. Diversification is the name of the game!
Make Strategic Improvements To The Business
Since your business sale will likely supply a nice chunk of your nest egg, you want to get the best price possible. To do that, know what your business is worth and make necessary, strategic improvements, like adequately scaling the company for growth, investing in your employees, cleaning up tech, or improving your products or services.
Making all of these changes up front will hopefully boost the value and total sales price and help you live your ideal retirement.
Update Your Estate Plan
If you own your business with multiple people or plan to bring on a partner, perhaps you’ll want a buy/sell agreement in place. As you prepare for retirement, it’s important to update beneficiaries on insurance, retirement, bank, real estate, and other accounts, as well as a will or trust vehicle.
The Lifestyle Side of Retirement Planning
Set Retirement Lifestyle Goals
Visualize the retirement you want and set lifestyle goals throughout the stages of your golden years. If you’re not sure where to start, ask yourself:
- Where do you want to live? Would you like to live closer to family or own a vacation home
- What do you want to do? Are you interested in traveling or volunteering for your community?
- Do you still want to work at your company or at another one?
- Are you interested in starting a new business? (Keep in mind if it’s similar to your present one, you may have to sign a non-compete with your potential buyer) If your field requires a license, will you have to take a test or pay additional funds to practice in a different state if you move?
As you decide on retirement lifestyle goals, think big picture! You want your golden years to glisten!
Create An Identity Outside Of “Founder”
Your business may be a considerable part of who you are, and it can be challenging to let go of that piece of your life. After years of pouring your heart and soul into your business, once in retirement, it’s important to know who you are outside the office.
Take some time to discover what means the most to you in life because once you’re retired, your job won’t be the thing to get you out of bed in the morning. Whether you want to focus on your family, volunteer in the community, or make it on a baking show, find the things that bring you immense joy.
Make A Detailed Plan For Your Time
A leisurely retirement may feel like shell shock for business owners who are used to being busy and juggling hundreds of tasks at once. That’s why making an intentional plan for your time is essential for a happy retirement.
Build a new routine and fill it with things that matter to you. Perhaps every Thursday from 10-1 you volunteer, work part-time consulting, sit on the board of your company, focus on your health, or maybe start a brand new business! Whatever path you choose, the goal is to maintain structure and focus on creating a community you can count on.
Don’t Be Afraid Of Flexibility
You may make a plan that doesn’t work— and that’s okay because the good news is that you can change it. Let your goals and values guide you. If one thing falls through, move on to the next.
Put It All Together With A Trusted Team
Retirement can be a daunting time for some, but with proper planning and a strong team by your side, retirement can be a rewarding adventure.
If you’ve always thought that retirement is unattainable and are excited about the possibility of making it a reality, get in touch to talk more about financial planning for small business owners.
Craig Toberman is the Founder of Toberman Wealth – a fee-only, fiduciary financial advisor based in St. Louis. He assists families and businesses with strategic financial planning and long-term wealth management. He has over a decade of experience in financial services and has crafted custom financial plans for hundreds of families and businesses.
Craig received a Bachelor of Science (B.S.) degree in Agricultural and Consumer Economics from the University of Illinois and a Master of Business Administration (M.B.A.) degree in Finance from Saint Louis University. He is a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) charterholder, and Certified Public Accountant (CPA).
Craig is a member of the National Association of Personal Financial Advisors (NAPFA), Fee-Only Network, and XY Planning Network.
Craig lives in the greater St. Louis area with his wife, Ally and son, Hank.