Many business owners don’t ever want to stop working. Perhaps they’re not sure what they’d do with their free time or worry they’d feel as though they lost a sense of purpose — either way, some plan to work until they drop. However, you might feel differently. You might want to sit back and enjoy the fruits of your labor at some point.
But if you built and now run a bustling small business, retirement (and especially early retirement) might seem impossible. The truth is, though, you can set an early retirement goal — and achieve it — as long as you have a clear plan and you stick to it with discipline.
Here are three components of planning your early retirement goal as a small business owner.
1. Defining Your Retired Lifestyle
To plan for retirement, you first need to figure out what you’re aiming for. Do you want to travel often? Do you want to relocate? Do you want to continue or take up an expensive hobby? How you want your everyday life to look in retirement informs how much you need to save.
We all have different lifestyles and spending habits, so only you can determine how much to save before you retire — though there are decent averages out there to use as a springboard. You can also use retirement calculators to help find a figure that makes sense to you. These calculators also provide all the avenues (saving, investing, etc.) you can take to reach that amount before your planned retirement age.
Paying off any business-related debts you took on as an owner is equally as important as regular contributions to savings each month.
2. Exiting Your Business
The way you exit your business will also impact your retirement. There are a few options for exiting:
- Sell your business. You can plan to sell your business to fund your retirement nest egg. If this appeals to you, you’ll need to start preparing the company for sale and lining up prospective buyers several years in advance.
- Pass it on to someone. Maybe you want to pass the business on to a family relative. But how will this affect you financially for retirement? Will you continue to receive income from the business? Further, they may call on you for help — leaving you not-so-officially retired.
- Dissolve it. If you don’t pass the business to someone or if your business is difficult to sell, you might have to dissolve it. Simply close up shop and liquidate the assets.
Be realistic about the amount of money you might receive from selling or passing on your business. In the meantime, continue to put savings into your retirement fund every month.
3. Keeping Your Savings Save
The money you save for early retirement could be placed in several types of small business retirement plans. Here are a few to look into:
- Individual or Roth IRA
- Simplified Employee Pension (SEP) IRA
- Savings Incentive Match Plan for Employees (SIMPLE) IRA
- Individual 401(k)
Consult a financial adviser to determine the best plan for your situation. It’s important to note if you’re planning to retire before age 59½, you’ll need to avoid the stiff penalties for early withdrawals from any tax-advantaged retirement plans — so, make sure you have other funds available to cover your expenses during that time.
Tracking Your Progress
Being able to retire early is about deciding when you want to retire, figuring out how much money you’ll need, taking charge of your money and following smart savings strategies to reach your goal.
After you’ve plotted your financial pathway to retirement, you’ll want to monitor your progress to make sure you’re on track to reaching your goal. If not, you can make adjustments to compensate and get back on course.
If you’re trying to balance contributions to your small business retirement plans with the business’s need for funding, check out National Funding’s small business funding solutions or fill out a contact form.