A 2019 study by The Guardian Life Small Business Research Institute revealed that only 45% of small business owners are ready to retire. Two-thirds are afraid they will outlive their retirement funds and one-third plan to retire when they are 70 and over, according to the Business Know-how.
Without a steady paycheck and employer-sponsored retirement plans in place, planning for retirement years can be difficult, especially when it’s a decade away. While a lack of retirement plan doesn’t seem like a problem, as you age, it proves dangerous and costly. With some forethought, you can overcome the challenges of retirement planning for entrepreneurs and enjoy life as a retiree.
Think of Retirement as a Milestone
The uncertainties of the future are key reasons most entrepreneurs are afraid of retiring from their businesses. But if you prepare well in advance, retirement is a milestone worth celebrating. It marks the end of your services and the start of a new life where you focus on your needs and family interests. Like any rite of passage, retirement changes your life significantly, and it is a time to celebrate. Besides, you do not have to spend a considerable sum to host a party for yourself. There are plenty of unique retirement gift ideas you can invest in to reward yourself for the achievements you have made throughout the years.
Develop a Life Goal Strategy
Envisioning your life after retirement and setting a goal for your business is crucial. This will help you choose a simple retirement saving plan for your business. Start by thinking about your future lifestyle expenses and sources of income. Also think about where you will live, at what age you want to retire, and the amount you will save every month. To ensure you create a realistic plan, consider increased cost of living as you age and health expenses.
Many entrepreneurs underestimate the cost of their future lifestyle and overestimate their income. As a result, they outlive their savings earlier than expected. Calculating the actual costs helps you determine if you are on the right path towards saving for retirement.
Have an Exit Plan
When preparing for retirement, think of what will happen to your business when you can’t manage it anymore. You can sell it to another company or have one of your employees buy out your shares. Alternatively, you can have a family member to run the business. Remember, old age is not the only factor you might consider retirement. Health issues can force you to retire sooner than expected. That is why preparing a future exit plan should be a top priority when setting up your business. A well though exit strategy will also guide you in making important business decisions.
A formal succession plan is essential, as it protects the family from uncertainties. Therefore, set goals, develop a financial plan, and determine what will happen to the business when you reach retirement age. If most of the family’s wealth is in the business, instead of selling your company, transfer the ownership rights to one of your family members.