Five ways small business owners prepare for retirement

By Troy Bender
Asset Retention Insurance Services
Posted 5/2/18

Preparing financially for retirement can be complicated for anyone, but for small business owners the process often poses even more …

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Five ways small business owners prepare for retirement


Preparing financially for retirement can be complicated for anyone, but for small business owners the process often poses even more challenges.

Teachers, police officers, firefighters and other government employees generally receive a pension. The corporate world can offer benefit plans or matching contributions.

But entrepreneurs can't automatically rely on any of those features; instead, they have to put saving and investing plans in place for themselves and their employees.

And often, small business owners aren't preparing sufficiently for retirement. A survey of business owners by BMO Investments' wealth management program showed 75 percent had less than $100,000 saved for retirement.

Small business owners have to do it on their own, and many aren't preparing properly. Many feel like they will never make it, but they can. The idea is to simply start.

Here are five ways small business owners can wisely plan for retirement:

Decide how much to save each month. An ideal average for saving per month is 15 percent of your pay. If that seems too much at first, you might ease into it. To begin, you may start with 5 percent and then ramp up 2 to 3 percent each year. As a better gauge, he says, note that an employee with a 401(k) can contribute up to $18,500 of their salary for 2018 if they're less than 50 years old. Someone aged 50 and over with a 401(k) can save $24,500 a year. A good goal is to try to match these amounts annually.

• The SEP IRA. As defined by the IRS, a Simplified Employee Pension plan provides business owners with a method to contribute toward their employees' retirement as well as their own retirement savings. It doesn't have the startup and operating costs of a conventional 401(k) or profit-sharing employee plan. Your business pays no taxes on annual earnings, as it grows tax-deferred.

Rule of 100. Retirement accounts that offer the highest return may seem ideal, but a business owner who goes down this path can be easily overwhelmed and stressed. Under the rule, you subtract your age from 100, and what's left over is the percentage of your portfolio you put into investments with some risk.

• Life insurance. A small business owner with a family should have 10 times their annual net income in life insurance.

• Key Person Insurance. As you have life insurance to provide financial help for your family when you pass away, a small business owner may want to consider "key person insurance." The death benefit offered through this type of insurance helps ensure that should a "key person" within a company pass away, the business will provide continuity for its employees (and customers).

Think about saving for the necessity stream as well as the discretionary stream. You should get the basics down and look at covering your lifestyle, so you can look back and smile from the thousands of hours you worked owning a business.


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