Can you afford to retire?

Retirement planning is important for small business owners. Here are four tips to get you started.

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How Much to Save for Retirement
Published: July 10, 2015

Small business owners, on average, plan to retire at age 65 and live 22.5 years in retirement. While 52% of them believe they're very or fairly well prepared for retirement, 39% are only somewhat prepared, and 9% say they are not really prepared at all.1

To prepare for life after work and be able to afford the retirement lifestyle you want, consider these four retirement planning tips.

Tip #1: Don't assume your business will bankroll your entire retirement

Thirty-five percent of small business owners say they're counting on selling their business to fund their retirement. Your business may be valuable, but experts say it's risky to rely on it to fund your entire retirement. 

"Many business owners look at the value of their business as their retirement nest egg," says Brian McFadzen, first vice president at Wells Fargo Advisors. "They often forgo implementing retirement plans to put all of their investment into the business. The old adage of 'putting all your eggs in one basket' comes to mind."

If your business is valued at less than you expect, or if you struggle to find a buyer, for example, you could jeopardize your retirement. Instead, protect yourself with several sources of retirement funding.

The average small business owner uses five sources to fund his or her retirement.

Tip #2: Explore different sources to fund your retirement

The average small business owner uses five sources to fund his or her retirement. Here's a breakdown of various retirement sources that small business owners use:

  • 71% use Social Security

  • 68% use savings and investments in stocks, bonds, mutual funds, and more

  • 60% use IRAs

  • 42% use real estate investments other than their primary home

  • 36% use proceeds from the sale of their businesses

  • 33% use retirement plans they've funded for their business

  • 31% use retirement plans or pensions from former employers

  • 30% plan to work part-time during retirement

  • 26% expect their businesses to pay them after they retire

As you plan for retirement, consider a combination of these different sources to ensure you have saved enough.

Tip #3: Invest in a self-employed retirement plan

While people who work for employers must decide whether or not to participate in their employer-provided plans, business owners have more responsibility.

"Retirement plans for small businesses require the owner to be responsible for operating and administering the plan properly," says McFadzen.

That may sound like extra work, but most entrepreneurs find it worthwhile: Two-thirds of small business owners say their adherence to a well-defined personal financial plan has enhanced their ability to save for retirement.

Learn more about how to start saving with your own retirement plan at the IRS and the U.S. Department of Labor websites.

Tip #4: Estimate the total retirement savings you'll need

How will you know if you've saved enough?

There is no clear-cut answer because the total savings you'll need to retire comfortably depends on a variety of factors: the age at which you retire, the age at which you start collecting Social Security, where you live, what you plan to do after retirement, and more.

The Center for Retirement Research, however, has estimated that the average American household can maintain its standard of living after retirement if it saves 15% of its income. Lower-income households may only need to save 11%, while higher-income households could require 16%. These figures assume you begin saving for retirement in your mid-30s and retire at 65.2

Guidelines can be useful as you set retirement savings goals, but they are estimates, not fail-safe formulas. While they can provide a great starting point, your circumstances are unique and you should plan according to them.

Set yourself up for retirement success with these tips in addition to working with an expert who can help you ensure nothing is overlooked.


"The 2014 Guardian Small Business Business Owner Retirement Readiness Study." Guardian. (2104)

2 "How much should people save?" Center for Retirement Research at Boston College. (2014)