Critical business strategies for entrepreneurs preparing for retirement

Published on July 8, 2020 | 4 min read | LPL Financial

When you work for an employer, saving for retirement can be as simple as signing up for a 401(k) plan and making regular contributions, but when you own your own business, preparing for retirement can be more challenging. While pouring decades of your life into your business, you need to make sure you’re also thinking about what will happen when you retire. To leverage your business to help during your retirement, keep the following strategies in mind.

1. Choose the most effective retirement plan

You should start preparing for retirement long before you ever plan to stop working. In that vein, consider consulting with a financial professional about the best retirement plans for small business owners. Ideally, you want a plan that has minimal administration costs and that allows you to make generous pre-tax contributions. Although there are many options, you may want to look into SIMPLE IRAs which allow small business owners to make tax-free contributions that are more than double the limit of a traditional IRA. Alternatively, cash balance plans are great for entrepreneurs who are trying to catch up on investment goals, and with these plans, you can contribute well over $100,000 per year.

2. Always think about the resale value of your business

When you’re trying to build a business, selling is often the last thing on your mind, but if possible, you should always think of the resale value of your company. As you run your business, keep very organized records and track expenses carefully. Potential buyers need to be able to fully understand your profit and loss statements, and ultimately, these records can make or break a deal. The ability to sell your business for a lucrative price can significantly fund your retirement.

3. Invest in long-term care insurance

As a small business owner, you can write off the cost of long-term care insurance for yourself, your spouse, and your employees as a business expense, and investing in these premiums can help during your retirement. If you ever have to move into a nursing home or a skilled nursing facility, long-term insurance helps to cover those costs. Medicare does not cover long-term nursing home care. In the absence of insurance, you have to pay for this type of care out of pocket or forfeit your assets until you become eligible for Medicaid. By thinking about this expense in advance and taking advantage of your position as a business owner, you can preserve your assets during retirement and hopefully even have enough to pass onto your heirs.

4. Look into passive income streams

As you get ready to retire, think of ways that you can continue to earn money from the business without being actively involved. For example, you may want to give yourself a certain amount of shares in the company so you can continue to enjoy profits throughout your retirement.

5. Set up your business to run without you

Eventually, you will have to step away from the company to enjoy your retirement. To make that possible, you should set up your business to run smoothly without you. Whether you plan to sell the business, maintain ownership but outsource management, or just reap the benefits of stocks, the company needs to run smoothly in your absence.

Important disclosures

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Sources

https://www.investopedia.com/ask/answers/102714/what-are-differences-between-simple-ira-and-traditional-ira.asp

http://www.amwarnerinsurance.com/ltc-insurance/business-owners.php