Small business owners have several areas to plan for when it comes to retirement. In addition to ensuring you'll be able to afford to retire, you should also start preparing emotionally for spending your days doing something other than running a business. Finally, when you prepare to retire, you must also think about what to do with your business.
Financial Planning for Retirement
Unlike employees who may enjoy employer-sponsored retirement plans, small business owners are fully responsible for making retirement plan choices and saving for retirement. Luckily, several retirement plan options help business owners prepare to retire. Sole proprietors may want to consider a solo 401(k) plan. Another option is a simplified employee pension individual retirement account, or SEP IRA, which allows you to contribute the lesser of 25 percent of net self-employment income or $53,000. It's wise to learn about retirement plans for self-employed individuals and business owners years before retiring; you may want to seek professional help in addition to your own research. Financially preparing for retirement is a long-term process, and getting on the right track with the best plan for your situation sooner rather than later can greatly impact your financial life as a retired business owner.
Emotional Retirement Planning for Small Business Owners
Running a small business often creates a unique lifestyle for entrepreneurs, spilling out of the traditional nine-to-five, 40-hour workweek to impact home and family time. When you prepare to retire from your business, it's important to plan other activities or pursuits to replace the time and mental effort you spent running that business. Being emotionally prepared for retirement also requires reassessing your personal identity. Many small business owners identify strongly with the business they built; once retired, they will have to find a new role to identify with.
Prepare to Retire From Your Business
Company management may choose replacements for retiring employees years in advance, but small business owners can take charge of their succession planning. They may choose to gradually "ease out" of their business, reducing work hours and delegating increased responsibilities to other workers.
Entrepreneurs retiring from a business may choose to hand over the reins to a long-time trusted employee or even to a qualified family member. Other times, preparing to retire from a business involves changing the working relationship from being the boss to acting as a consultant, allowing the owner to travel or spend more time at a vacation property. Entrepreneurs may even choose to sell the business outright to fund their retirement.
Preparing to retire from owning and running a small business involves more than simply calculating if your savings will support a retiree lifestyle. At least two years prior to your planned retirement, start thinking of how you'd like to spend your time and who will take over your business.
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