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Apr 15

4 Tips For Navigating Retirement Planning as a Business Owner

When you’re a business owner, retirement may seem like it’s on an ever-receding horizon. There’s always more work to be done, and finding the time to map out the financial aspect of walking away from your work can be tricky. 

Whether you love what you do or you only launched your business to put food on the table, being a business owner comes with many emotional and financial hurdles when it comes to planning for retirement. In this blog series, we’ll be going over: 

  1. Tips to get started financially planning your retirement.
  2. How to evaluate what role your business plays in your finances.
  3. Ways that business owners can financially prepare for retirement.
  4. How to emotionally prepare to make the retirement transition.

Ready? Let’s dive in.

#1: Start Planning Early

If you’re a business owner, there’s likely more red tape you’ll have to cut through in order to successfully take the leap to retirement. And, believe it or not, some of the most challenging parts of the transition are inside your head. This is why it’s critical to start planning early! 

Not only will you have more time to save, invest, and build a comfortable nest egg, you’ll also be able to determine the best glide path for you to exit the business. 

Planning at least 10 years in advance of your desired retirement timeline can help to ensure you have a solid plan for stepping away from the business – whether that means selling it, or passing it on to a successor in your business. 

Pro Tip: Seek the advice of a financial planner that is used to working with business owners. Work with them to learn about tax-favored retirement plans that not only serve you well, but also create greater incentives for your employees.

#2: Think Comprehensively

Stepping away from being a business owner is only one small part of your overall retirement plan. You should think more comprehensively about what you want this next chapter to hold. Do you plan to continue working in some capacity? Do you want to consult? Do you plan to snowbird or move to a different location in retirement? What will your lifestyle look like? 

What will get you up in the morning after you sell your business?

Your lifestyle and corresponding expenses may be dramatically different than when you ran a business full-time. For example, you may be used to the tax advantages of running a business. So, don’t be shocked when you buy a vehicle and can’t write it off on your taxes.

Taking the time to assess what you want your life to look like in this new season can help you to determine how much you need to save, and what vehicles you can use to create a retirement plan that minimizes taxes. 

You may also determine that, given your current savings and ability to save provided by your business, you need to diversify your investments over the long-term to increase cash flow in retirement. Because remember, often your most productive investment is your own business.

Again, starting early gives you plenty of time to make these decisions and set yourself up for future success.

#3: Consider a Succession Plan

All business owners should consider a succession plan prior to retiring. This helps to ensure that your business transitions to the next generation of leadership, and continues serving your clients and making an impact. For many business owners, this is also part of their legacy planning. They’ve spent years building something they’re truly proud of and passionate about, and just walking away isn’t an option.

You could consider options such as an installment sale to the employees (or others) which would be deciding to sell but staying to assist with the transition. In addition, the new owner might even offer you incentives in return for your assistance.

When you start the planning process early, you can determine what kind of succession plan makes the most sense for your unique goals.

Pro Tip: A succession plan also includes gradually “giving up” your tasks to others within the business. It’s never good if you’re the only one that knows how to accomplish a certain task!

#4: Starting the Transition Early

Retirement doesn’t have to happen at the flip of a switch. Many business owners opt for a phased approach to retirement, what we call a glide path.This allows them time to set up a succession plan, or to allow other partners to slowly buy into the business, and gives them more of a runway to:

  1. Save enough to support their lifestyle.
  2. Convert the cash flow they receive from the business (either as a shareholder, or as a result of others buying in) to assets that continue to collect long-term gains.
  3. Gradually reduce their work hours over time to become more accustomed to the retirement lifestyle.
  4. Training the next generation of leadership.
  5. Supporting clients or customers through the transition.

Up Next

With these four quick tips, you can start tackling your retirement transition. In our next post, we’ll be going over how business owners can effectively evaluate their business, and the importance of going through this process prior to making the switch to retirement.

About The Author

Dale has been in practice since 1983. Over the past three decades, he has enjoyed watching his small firm grow into a family of professionals and clients.

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TFS Advisors is a fee-only advisory firm located in Edmonds, WA.

Our blog contains our thoughts on everything from starting a portfolio to drawing income from it in retirement. Many of our posts focus on answering frequently asked questions we receive from clients.

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