Retirement often looks different to a business owner than it does to an employee. Some business owners are so busy with their careers and family that they barely find time to think about retirement. Others love their work so much that the idea of retiring rarely crosses their mind. Still, others believe they’ll never be able to afford to retire — which thankfully isn’t true in most cases.
If you’re a business owner who finds planning for retirement overwhelming, exhausting, or even a bit unrealistic, then you are actually a perfect client for wealth management services. An independent financial advisor can take the burden off your shoulders as they help you responsibly plan for a comfortable retirement. Here are some of the key steps you can take alongside your wealth management professional.
Clarify Your Dreams and Goals
What does retirement look like to you? There are no right or wrong answers here. Maybe you dream of moving back to your hometown once you retire, or perhaps you’ve always wanted to build a seaside villa on the east coast.
Your financial advisor can help you clarify your retirement goals by asking you thought-provoking questions and encouraging you to focus on the most important details. Once you know what you want your retirement to look like, you’ll have a specific goal to work towards. Your financial advisor will calculate roughly how much money you’ll need to retire the way you’d like. They can then help create a plan and timeline that will allow you to reach that goal.
Most business owners are dreamers, deep down. They’ve just been working towards one dream — their business — for so long that they often need a little push to start formulating a different one.
Invest in the Optimal Retirement Plan
When you’re self-employed, you do have to take a bit more initiative to open a retirement plan and start investing. There’s no employer opening a 401(k) on your behalf!
There are a lot of retirement plans available to business owners. SEP IRAs, SIMPLE IRAs, Traditional IRAs, and Roth IRAs are the most common, but there are others. It’s easy to become so overwhelmed by your options that you never settle on one. Working with a financial advisor is so helpful in this case. Your advisor can talk with you about your income, lifestyle, and retirement goals and recommend the best retirement plan for your needs. They’ll also help you choose the best investments within that plan.
Business owners’ needs also tend to change a lot over the years. For example, if you opened a certain retirement plan 20 years ago when you were operating as a sole proprietor, that plan may no longer be the best option now that you have an S-corp with 20 employees. Speaking with a financial advisor is a great way to find out if you can and should change your retirement plans. As you continue to work with your advisor over the years, they’ll stay up-to-date on any changes in your business and let you know if you should change retirement plans in response.
Purchase Long-Term Care Insurance
Long-term care insurance is important for everyone, but especially for business owners who don’t always have a support system in place if they were to become injured or disabled. Having to sell or liquidate your business to pay for long-term care could completely up-end your retirement plans. Thankfully, long-term care insurance exists to ensure this does not happen to you.
Your wealth manager can put you in touch with reliable long-term care insurance companies. They can also explain how long-term care insurance will benefit you, personally, as you move towards retirement.
Create or Review Your Estate Plan
While everyone should have an estate plan, creating an estate plan becomes more complicated when you own a business. You will absolutely want to work with an estate planning attorney, and your wealth manager should be involved as well.
An estate plan dictates what will happen to your business, your home, your retirement accounts, and your other assets when you pass away. It is important to create an estate plan alongside your retirement plan since the two impact each other. For instance, you may choose a certain type of retirement plan because it is easier to will to your designated beneficiaries. Or, you may want to change your business structure in order to make your estate plan able to be carried out as intended.
An estate plan does not just protect you. It also protects your family. As a business owner, it’s likely that you are a go-getter, a planner, and a central element of your family. They’ll surely miss you when you’re gone. You don’t want them to have to deal with financial complications while they’re already mourning your loss. You’ll gain peace of mind knowing that they’ll be cared for in your absence.
Increase Your Business’s Value
Many business owners plan on selling their business, or at least a portion of it, as a part of their retirement plan. This can be a great strategy, but it has to be approached carefully. You need to have an accurate idea of what your business is worth in order to plan for its sale. If you over-value your business, you may find that you come up short when you do sell. A wealth management professional can help you get a more accurate picture of your business’s market value, which can help you create a more accurate retirement plan.
Your financial advisor can also work with you to increase your business’ value over time. With the right approach, your business could be worth significantly more by the time you retire, which can give you a big boost towards your goals.
Increasing your business value is something worth strategizing. Growth does not always mean hiring more employees or expanding your customer base. Sometimes, it may mean modernizing some of your current services, branching out into a new sector, or even restructuring your business. Your wealth manager can help you explore your options and give you insight into how those options will affect your retirement plans.
Develop an Exit Strategy
For better or worse, there will be a day when you leave your business behind and become a retired person. But if you do things responsibly, your exit won’t come all at once. Rather, you’ll have a planned exit strategy that you execute over a series of months or even years.
This exit strategy looks different for everyone, which is one reason why it’s so important to work with a wealth manager to develop your own. As you plan your retirement, you can make decisions about factors such as when you’ll leave, who will take over certain aspects of the business when you leave, whether you’ll sell certain parts of the business, and so forth.
You may not set an exact timeline for your exit strategy right away, but as retirement grows closer, this will become a focus of your planning. Your financial advisor can ensure you take the appropriate steps back when it’s in your best financial interest. It’s really important to have a trusted advisor by your side as you navigate this process. Sadly, family members and business partners often encourage business owners to step away at the time that’s most suitable for them. Your wealth manager will ensure you leave at a time that best serves your goals.
Planning for retirement can feel like a big burden when you’re a busy business owner already wearing 12 different hats. However, a plan is key to retiring comfortably. Working with a financial professional can make retirement planning less of a burden. At RLJ Wealth, we’ll walk beside you, helping you create clear retirement goals and a framework for reaching them. Contact us soon to schedule an appointment.