Starting a retirement savings plan can be easier than most business owners think. What’s more, there are a number of retirement programs that provide tax advantages to both employers and employees.
A retirement plan has significant tax advantages:
Experts estimate that Americans will need 70 to 90 percent of their preretirement income to maintain their current standard of living when they stop working. So now is the time to look into retirement plan programs. As an employer, you have an important role in helping America’s workers save.1
By starting a retirement savings plan, you will help your employees save for the future. Retirement plans may also help you attract and retain qualified employees, and they offer tax savings to your business. You will help secure your own retirement as well. You can establish a plan even if you are self-employed.
In addition to helping your business, your employees, and yourself, it’s easy to establish a retirement plan, and there are additional reasons for doing so:
Most private-sector retirement vehicles are either Individual Retirement Arrangements (IRAs), defined contribution plans, or defined benefit plans.
Building a successful business takes a great deal of resources. With your time and energy focused on the daily demands of running your business, you may not be aware of important financial planning issues that should be addressed to help ensure long-term business success.
As a business owner, it’s important to make time for financial planning. Putting strong plans in place now can help protect your business from the consequences of unforeseen events that are often out of your control. If these events occur without a financial plan, it could be too late to shield your business from the impact.
Consider the following key financial planning questions to see how your business would fare if the unexpected happens. Your financial advisor should help you focus on their future goals while safeguarding your business from unforeseen events. A financial professional working with your current advisors can provide advice and expertise, while recommending solid strategies to help protect your business from costly mistakes.
Don’t let your business change in an instant.
Business succession planning helps ensure that your business can continue if unexpected incidents like the loss of a partner, divorce, death or disability occur. Any of these events can quickly ruin your future business plans. And, planning for an unexpected accident or illness becomes even more critical when you consider that:
Succession planning is especially important if you plan to pass on your family business and help ensure that you’re not one of the 70% of family businesses that don’t survive to a second generation. Or one of the only 10% that make it a third generation.3 Make sure everything you have worked so hard to build stays intact to pass onto the next generation.
When you meet with your financial professional plan to review the following questions to help determine if your business is at risk.
If you’re like most business owners, you tend to put all your money back into the business. In fact, 45% of a small business owners’ net worth is tied up in their business. But relying on your business to be your sole source of retirement income is like putting all your eggs in one basket. If you plan to sell your business to fund retirement, consider that only 3% of start-up entrepreneurs plan to acquire an existing business. This means only a few people may even be in the market to consider buying your business. And, you can’t pass your business onto your children if you need to draw income from it. So it’s especially important to have a retirement plan in place that is not solely dependent on your business.
1 mbda.gov November 2015
2 Social Security Administration. January 2019
3 Harvard Business Review. February 2012
Many people think of succession when getting ready to retire. But, there are several scenarios where it may not be their choice, such as when disability, divorce, or death of a business partner occurs. What then?
If your business factors into your retirement plan, you need to consider the unique challenges that a business brings to retirement – like ensuring you have a reliable income stream and if necessary, a buyer for your company.
Push aside those images of butlers and private jets; estate planning is not just for the super wealthy. It’s imperative for business owners who tend to have most of their net worth tied to the business. Not having a plan can dramatically impact the future of your family and business.
It’s important to recognize and reward vital staff members who help you keep the business running smoothly, allowing you more freedom to focus on business growth. Taking the right steps now could help keep you from losing a critical employee to a competitor in the future.