If you’re like many small-business owners, you are so sharply focused on running your business that your personal retirement planning may not receive the full attention it deserves. You can help ensure that you’re on the path to a satisfying retirement by dodging these five common missteps.
Mistake 1: Overestimating the value of your business. If you plan to sell the business and live off the proceeds in retirement, an accurate estimate of the price you can get for the business is crucial. Monetizing a small business is as much an art as a science. If the company’s growth is too dependent on you personally, the sale price may be heavily discounted. The same is true if your firm is overly dependent on just a few customers.
Mistake 2: Not taking steps to make the business more attractive in the marketplace. Grooming successors so the business can continue to operate successfully without you is essential to fetching top price for your business. It’s best to start early so the transition occurs smoothly. No matter what your age, it’s never too early to put a business succession plan in place.
Mistake 3: Underestimating your personal expenses. When estimating what your living expenses will be in retirement, it’s easy to overlook costs that your business currently covers for you. That can lead to misjudging what it will cost to maintain your standard of living. For example, your company may pick up expenses such as your car, club dues, travel expenses, computers and more.
Mistake 4: Not making sufficient use of tax-advantaged retirement accounts. Tax advantages may help you set aside more money for retirement and help your money grow more quickly. A variety of tax-advantaged accounts are available to small businesses, including payroll deduction IRAs, simplified employee pensions (SEPs), SIMPLE IRA plans, profit-sharing plans and a variety of 401(k) plans. Employer contributions are tax-deductible, and assets in the plan grow tax-free. In addition, tax credits and other incentives for starting a plan may reduce costs. For details, see Publication 3998 “Choosing a Retirement Solution for Your Small Business” at irs.gov.
Mistake 5: Not planning how to spend your time in retirement. Owning a business is different than just having a job or building a career. It often forms the basis for the person’s identity. Concentrate not on what you’re retiring from, but what you’re retiring to. Suddenly losing all the structure that owning a business imposes on your life can be a difficult transition unless you plan for it. Put together a strategy for how you’ll spend your time.
Make the right move
The financial consultants at United Community Advisory Services can help you make sure your retirement plans don’t fall through the cracks as you devote your time and attention to your business. Call 864-241-8725 to learn more or to make an appointment with one of our advisors.
Please note that neither this financial institution nor any of its affiliates give tax or legal advice. Consult your tax advisor regarding your individual circumstances.