Retirement planning is smart, plain and simple. It provides you with options should you have a change of heart and decide that working for the rest of your days isn’t what you want. Small-business owners are chief among those who intend to remain in the workforce. If they reconsider, though, would they be able to financially support themselves? New data suggests otherwise.
In a recent Gallup poll, more than half of small-business owners – 53 percent – have no intention of calling it quits when they reach the traditional retirement age, which is the mid- to late-60s. In 2014, when a similar survey was conducted, 55 percent of respondents planned on continuing to run and operate their business, an indication that what people expect to do in their golden years is rarely cast in stone.
“Only 1 in 5 have run the numbers on retirement expenses.”
But in a more up-to-date survey on retirement income, also conducted by Gallup, only 20 percent of respondents (in this instance, investors) had actually gone about calculating their retirement expenses. What’s more, over 40 percent of the participants said they hadn’t much thought about it.
The polling outfit’s findings largely mirror those done by a small business advisory firm. Of the nearly 2,000 small-business owners that participated in the analysis, over a third admitted not having a retirement savings plan in place, Inc. reported.
Nearly half of Americans may not retire comfortably
Retirement uncertainty among business owners is largely in line with the sentiment of the general public. In another Gallup survey, more than 45 percent of respondents who hadn’t retired yet but planned to said they likely won’t have the money to do so comfortably. And in a report released by the Insured Retirement Institute detailing the post-working world expectations of baby boomers, only 25 percent of boomers said they were confident their retirement savings would pay for their costs of living.
In a feature for Inc., executive John Swanciger said small-business owners must be particularly mindful about planning.
“Unlike in the corporate world, entrepreneurs don’t have the support of complex benefits plans or the luxury of matching contributions,” Swanciger explained. “Small business owners have to put those plans in place for themselves and their employees, while also determining at what age to retire and who (if anyone) will become their successor.”
If you’re a small-business owner who’s contemplating retirement, here are a few strategies that can get you in a good place so you have the option to call it a career and hand off the reins to someone else:
Consider life insurance
Americans turn to many different funding vehicles to pay for their retirement, including but not limited to Social Security and 401(k)s. Life insurance serves as an additional funding source, even though you may consider it something that mainly pays for final expenses. It does this, of course, but it can also be used as a retirement supplement thanks to its tax advantages, like tax-deferred growth and tax-free death benefits. Life insurance premium financing can provide the funding.
Speak to a financial advisor
If you’re not working with a financial advisor, you really ought to. Nearly 80 percent of baby boomers who do so average $100,000 saved, based on statistics from the IRI. The same can be said for just 48 percent of Americans who don’t have a relationship with a financial advisor.
Avoid putting all your eggs in succession basket
Selling your business can serve as a smart succession plan, but there’s no guarantee it will be purchased at the high price that you expect for all the work you put into it, advised Paul Davidson, director human resources at Paychex.
“Don’t rely solely on the profits of selling your business,” Davidson told the National Federation of Independent Business. “Have a contingency plan in place and start saving early in the event that your business does not sell at the right price at the right time.”
Flexibility is the key to smart retirement planning. Global Financial Distributors provides the funding products that keep your options open. Talk to a GFD Solutions advisor to learn more.