Too many retirees are entering their golden years with too little saved--small business owners included. Many business owners focus on the present. It's essential to think about the future: not the future of the business, but your future, too.
Without even realizing it, some consider their business to be their retirement plan. They can sell the business and live off of the proceeds. Or you they structure the deal so that they get a monthly income from it. You'll want to gain some financial benefit selling your business, but you can't keep all your eggs in one basket. Here are five tips to help you plan for retirement:
The sooner you implement these tips, the better. The longer you're able to save for retirement, the more financial freedom you'll have. For more information on insuring yourself or your business, contact one of our agents.
- Know your numbers. You need to know how much the business brings in and how much you take home. Once you know these numbers, you should also have a budget at home. This can help you (and your partner) can plan your spending and saving. Will the business hold the pension, or will you invest from your take home pay? Your financial planner can help you decide the answers.
- Save at least 15% of your personal income for retirement. Financial gurus suggest saving 10% to 15% of your income for retirement. It's a good idea to aim for a higher amount so that you're well prepared. If you're not already saving, start small. Save 3% from each paycheck. Increase by another 3% each quarter until you get to 15%. Your spouse, if any, should also be doing this from his or her income, as well.
- Open retirement accounts. Don't just keep this money in your regular savings account. You'll want to open up accounts that are specially designed for retirement savings. Some options that small business owners have include: a SEP-IRA, a SIMPLE IRA, a Solo 401(k) and a SIMPLE 401(k). Your financial professional can explain the differences and benefits of each one.
- Invest your savings into index funds with a strong history. After you open up IRA or 401(k) accounts, it's time to let your hard earned money work for you. Choose index funds with at least a ten year history of producing good returns. Aim to choose one that has at least an average of 8% increase.
- Have adequate insurance policies. Insurance is a necessary expense. Of course you need business insurance to protect your business. You also need adequate health and life insurance. One hospitalization will set you back thousands of dollars if you have to pay out of pocket. Life insurance will help your family financially if you're no longer with them.