I love to see small business owners start and run successful businesses. When a new business launches here in Western Connecticut, it’s a proud moment – not just for the owner but for all of us in the community. It’s the start of something new and exciting that has the potential to impact our area for years to come.
But, for me, there’s one thing more exciting than seeing a small business owner beginning his or her business life. And that’s a small business owner wrapping up his or her business life. Someone who has put their heart and soul into their business over the years and who has made just as many investments in their own personal financial success as in their business. Someone who can, at the end of that career, enjoy the results of their hard work because they took the time to invest in themselves and by saving for retirement.
You’d be surprised, though, how many business owners don’t take this critical step and look into small business retirement plans. Like most Americans, they don’t start early enough – or at all – when it comes to thinking about what happens when it’s time to retire. Many believe that simply investing in their business over the years will pay off at the end when they can sell their company and are ready to retire. And while I certainly hope that big pay day happens for every small business owner, the truth is it rarely does.
The good news is you don’t have to cross your fingers and hope that someone else will fund your retirement by buying your business when you’re ready to move on. You can do things right now to fund your own retirement that will give you the financial freedom you’ve worked so hard to earn.
4 Steps to Planning for Retirement
Here’s a simple four step checklist for you to consider as you think about saving for retirement:
Step 1: Start Now
There’s an old saying that the best time to plant a tree was 20 years ago. And the second best time to plant a tree is today. The same is true with retirement planning. You can never start too early. The power of compounding interest over time is incredible. If you’re 28 and just opened a corner bakery, now is the time to take some of that income and put it aside for retirement.
But if you’re 48 and you’re shaking your head because you think you’ve waited too late, you haven’t. Just like it’s never too early, it’s also never too late. The key is to start and then be intentional about it over time.
I understand that taking some of your income and investing it for retirement means money you’re not plowing back into your business. For a small business owner, cash flow is so critical. Taking some of that cash out and investing it for retirement feels difficult. But it’s a normal part of small business planning and it gets easier to do over time once you get started.
Step 2: Picture What Retirement Looks Like to You
Have you thought about the next chapter in your life? If you want it to be rewarding and to have lots of options and flexibility, now is the time to sit down with a financial advisor to talk about a plan for saving for retirement that will get you there. Retirement happens before you know it.
So what does retirement mean to you? I have lots of clients who want nothing more than to move to the beach and live the simple life. Others want to see the world on cruises and trips. Some want to spend as much time as possible with their children and grandchildren. And some want to continue working by volunteering with their favorite charity or even starting a not-for-profit organization of their own. But whatever your retirement looks like to you, it’s important to actually define it so you can put the plans in place to make it happen.
Step 3: Make the Plan
Planning for retirement is as critical for a small business owner as the other aspects of running the business. You are likely already meeting with your accountant, your attorney, your insurance broker and other business advisors on a regular basis. You should also take the time to meet with your financial advisor on the same schedule. This trusted advisor can take the picture you have of your retirement and then define the best retirement plans, strategies, and investment vehicles to get you there.
There are many investment options available to small business owners who want to save for retirement. Which option to choose is usually defined by things like your business’ cash flow and how much you want to earmark for retirement, your own tolerance for risk, and your need to diversify as your assets grow, among other factors.
This isn’t as complicated as it seems because you’re already following some of these principles now in your own business. Take diversification, for example. As you grow your business, you are ensuring that you have a broad enough base of customers so that you aren’t severely impacted by any one group in the event of a downturn. The same is true with your investments. The more you diversify into different types of investments and investment vehicles, the more you insulate your assets from a downturn in one particular investment.
Some of the investment vehicles include certificates of deposit, IRAs (Roth and traditional), brokerage accounts, and 401(k)s. This is where having a financial manager dedicated to your future financial security is so important. He or she can help you decide which of those is right for your situation now, as well as 10 or 15 or 20 years from now.
Step 4: Work the Plan
With your small business retirement plan and investment strategy in place, the easiest way to fund it over time is to make automatic investments on a regular basis. As you know, your day-to-day focus as a small business owner is on investing in the business. It is human nature to worry about today and not think too much about tomorrow. But if you set up regular deposits into your investment vehicles over time – and, in essence, pay yourself first – you’ll find that you won’t miss those dollars nearly as much as you thought you would.
No matter your age or how long you’ve owned your business, retirement seems like a long time from now. But it comes much faster than you think. You are pouring so much heart and energy and sweat equity into your small business right now that you could easily look up and retirement will be right in front of your face. That can be an overwhelming feeling if you haven’t planned for it properly.
You are doing so much right now to take care of your business. Saving for retirement and investing in your future is a great way to let your business take care of you.
Written by Frederick “Rick” Judd
Executive Vice President, Wealth Management & Branch Banking, Union Savings Bank