Retirement and Transition Plans

Five considerations for retirement planning as a small business owner

Tips to help guide business owners' retirement process.

1. Weigh your current income level against the end goal

There's no one-size-fits-all rule for retirement planning, so it's vital to clarify your goals for the future — both personal and business. From there, you can determine how your current income level aligns with your retirement goals (eighty percent of your current income is a typical benchmark). If you don't have much time or cash flow, you may have to commit to a strict savings plan or be willing to adjust your end goals.

2. Consider diversifying your retirement plans

There are limits on the annual contributions you can make to your SEP-IRA, solo 401(k) plan, or SIMPLE plan. If you have reached that limit but still want to catch up on savings, explore other plan types to build additional wealth. Speak with your financial advisor about which combination of plans will serve you and your business best.

3. Formulate a transition strategy early on

Business owners tend to think they will be able to leave the business whenever they're ready to retire, but it's much safer to begin preparing for your departure five to ten years before your anticipated retirement date. Establish the market value of your business, and plan in advance whether it makes the most sense for you to sell to a buyer, pass the business down to a child, undergo a merger or acquisition, or liquidate your business.

4. Make your business more marketable by becoming an LLC

The majority of small businesses are sole proprietorships, but because of the issues that arise with the intermingling of business and owner assets, it can be complicated to transfer ownership of a sole proprietorship. If your retirement plans include the income from selling your business, consider simplifying the process by filing as an LLC. You can get started by filing articles of organization with your state government office.

5. Maintain an emergency fund

No matter how well you plan, the unexpected can happen. Be sure that equipment repairs or slow business months won't infringe on your retirement plans — put some cash aside when profits are comfortable and find ways to implement strategic cost management in tighter times.

Learn more about planning financially for retirement.