Small Business Retirement Plan – When and How

“Every beginning has an end”

Small business owners, after dedicating a lifetime to their business, are entitled to a hassle-free and comfortable retirement, which they often fail to work on, owing to several reasons. Despite understanding the pressing need of systematically planning for their retirement most small business owners are not seriously inclined towards it.

Small business owners must start thinking about retirement planning

According to, there are approximately 28.8 million small businesses in the USA out of which only a certain percentage have active retirement plans. This was demonstrated by The Kaufman Foundation report that revealed that more than half the small businesses are being initiated by baby boomers yet retirement planning is not on their agenda as their prime concern. The MANTA survey 2017 clearly showed that among the 1960 small business owners taken as case studies, only 66% had retirement savings plans.

What keeps small business owners away from retirement planning?

Managing a small business can be a full-time job for the owners until the ball of success gets rolling. Every intricate detail of the business calls for their attention until it is well- established. While raising their business like their babies, small business owners often forget to plan for the time when they would have to retire.

Time runs out and business owners often forget to plan their retirement properly

A recent study of 500 small business owners revealed that they had not drawn a personal salary from the business for several months so that they could put it back into the business. A large percentage of them even consider their business as their retirement.

When to begin planning for retirement?

“Plans are nothing; planning is everything” – Dwight D. Eisenhower

Experts estimate that ideal retirement savings for small business owners are at least 70% to 90% of their pre-retirement income. This retirement savings requires methodical and consistent planning. Small business owners are often well versed with numerous options available for them, but few choose to act.

Financial strategists assert that small business owners should begin contemplating on their retirement portfolio as soon as their business is over the initial setup phase otherwise strategically they will never be able to take out retirement savings from the business. Something else will always find priority!

start planning for retirement savings

How to plan for retirement?

Business owners who have been holding back on their retirement savings plan are usually skeptical about which retirement plan would be best for them and their employees, owing to costs and contribution limits. If you are one of them then you can discover an optimal retirement strategy by following the viable tips mentioned here:

Knowing your options: They should be well-versed with the retirement saving plans available. The plans facilitating retirement savings for small business owners are:

·        SIMPLE IRA

·        SEP IRA

·        Solo 401(k)

·        Roth IRA.

Legal heir or Successor: Small business owners should plan their legal heir or successor ahead of time. The assurance that their business would be taken care of by capable hands when they retire is also an important part of retirement planning.

Diversify Investment: Besides investing in retirement savings plans, small business owners should diversify their investment portfolio as part of their retirement savings strategy.

Diversifying Investment should be part of retirement strategy

Set the Date: Setting up a date to retire make retirement day more tangible. This allows the planning to start and move forward. It’s necessary for small business owners to set a date or else there is never a right time for the small business owner to retire.

If you are a small business owner and haven’t given a thought to retirement plans, well now is the time. Make your retirement planning a priority now to enjoy your golden years in peace.

If you are a small business looking for professional assistance with your retirement plan, contact the experts at FFPCT here and book a free consultation – FFPCT Business Finance Consultants.

How to Plan for Retirement as a Small Business Owner

Take control of your retirement just like you take control of your business every day!

We all know that saving for retirement is pretty important. When you’re a salaried employee working for a company, you typically sign up for their retirement plan and that’s that. However, if you’re the owner of a small business you do not have the luxury of just signing up for whatever plan your company has to offer, because you ARE the company! You have to figure out a way to save for retirement on your own in this case.

A surprising number of small business owners are not adequately preparing for their future retirement. If you own a small business, it’s critical that you establish some sort of retirement savings plan, so here are a few ways to get started.

By Maurie Backman

1. Create a retirement budget
Though it’s not always easy to predict how much you’ll wind up spending in retirement, the sooner you get a sense of how much income you’ll need to stay afloat, the more accurate a goal you’ll have to work toward. Since you’re self-employed, your business might be offsetting some of your existing living costs. For example, you might currently be leasing your personal car for your business, or taking a home-office deduction if you conduct business out of the house. But these benefits won’t be available once you’re no longer generating an income, so keep them in mind as you attempt to map out your future budget.

2. Find the right retirement savings plan
Small business owners have several options when it comes to saving for retirement — options that salaried workers don’t have access to. The first one you might consider is the solo 401(k), which works just like a regular 401(k), only with one added benefit — the ability to contribute up to 25% of your business earnings for a total annual limit of $54,000 if you’re under 50, or $60,000 if you’re 50 or older. Like a regular 401(k), solo 401(k) contributions are tax-deductible unless you opt for a Roth account, in which case you’ll pay taxes now, but enjoy tax-free withdrawals in retirement.

Then there’s the SIMPLE IRA, which, if you’re self-employed, allows you to contribute up to $12,500 per year if you’re under 50, or $15,500 per year if you’re 50 or older. Furthermore, with a SIMPLE IRA, employers must make contributions on behalf of participating workers, either by matching employee contributions up to a maximum of 3% of salary, or contributing 2% of employees’ salaries up to a maximum of $5,400. If you don’t have many (or any) employees, a SIMPLE IRA could be an effective means of saving for retirement, but if you have a large number of people who work for you, it could get expensive.

Finally, there’s the SEP IRA, which, if you’re self-employed, lets you contribute up to 25% of your net business income per year, up to a maximum of $54,000. The one drawback to the SEP is that, as a small business owner, you’re required to contribute the same amount to your employees’ accounts as you do to your own. But if you don’t have any employees and want to save in an IRA, you’ll get more flexibility with a SEP than you will with a SIMPLE.

3. Ramp up your savings rate
Once you figure out where you’re going to put your money, your next move is to work on increasing your savings rate to give your nest egg a decent amount of time to grow. Even if you start out with relatively small contributions, by steadily increasing the amount you put into your savings plan, you’ll have a good chance to make up for lost time — especially if you’re eventually able to max out a plan with a generous limit to begin with, like a Solo 401(k), or a SEP IRA.

Of course, the challenge many small-business owners face in saving for retirement is that they prefer to reinvest their earnings in their companies rather than set that money aside for the future — so you’ll need to work on striking a balance. That might involve pumping more cash into your business during its early years to build it up, and then boosting your retirement savings rate once your company is well established. Or it might mean taking advantage of years with better profits and socking away the difference for the future.

If you’re a small business owner, it’s critical to take retirement planning into your own hands. The sooner you begin focusing on the future, the better equipped you’ll be to make smart decisions for yourself and your business in the present.

Read the full article here.

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7 Myths About Finances in Retirement

Do you subscribe to one of these myths about retirement and your money?

When it comes to your retirement, do you have certain expectations already defined in your mind, or do you already picture your retired lifestyle in a certain way? Or maybe you are young and you have absolutely no idea what your life may look like once you retire? Either way, it’s important for you to get a firm grasp on what your financial future will look like once you do make the decision to exit the workforce.

Retirement is a brand new phase of life that instigates so much change for your finances. You already know you will no longer have that bi-weekly paycheck, but there will undoubtedly be some other surprises when it comes to you finances… things that you might not have expected. That certain lifestyle picture in your head might have led you to believe one of the common myths about finances in your retirement. They’re described in detail below.

By Rachel Hartman

1. Medicare will cover everything. You become eligible for Medicare the month you turn 65, but it’s important to remember there will still be ongoing health care expenses. “Medicare only covers some services for free,” says Jennifer Myers, a certified financial planner and president of SageVest Wealth Management in McLean, Virginia. Unless you qualify for Medicaid, you’ll need to budget for costs such as premiums, copays and deductibles.

You’ll also likely need a Medicare supplement plan, which can be affordable but not free. And keep in mind Medicare only provides some coverage for long-term care. You may want to think about purchasing long-term care insurance to help pay for additional services.

2. I will only need 70 to 80 percent of my pre-retirement income. While your list of expenses won’t include job-related costs like an office wardrobe and commuter expenses, it could easily be filled with other items. You may find you want to spend money on activities such as traveling, eating out, going to the theater or taking up a new hobby. “People are healthier and more active in today’s society than generations past,” Joseph says. “This means they need more money to go out and do what they would like in their retirement.”

3. Taxes will nearly disappear in retirement. Since you’re no longer bringing home a paycheck from working each month, it can be easy to think that taxes will decrease in retirement. Even though taxes can fluctuate greatly depending on where you live and your overall financial situation, you’ll likely need to plan on paying taxes each year.

Some states exempt pension and Social Security payments as taxable income, but they’re still largely subject to federal taxes. Another factor to consider is the amount you have in qualified retirement plans, such as IRA and 401(k) accounts. “Distributions from these accounts are generally fully subject to ordinary income taxes,” Myers says.

4. Downsizing will lead to further savings. A common retirement transition plan involves moving out of the family home and into a smaller place. You might assume this shift will lead to fewer home-related costs, but that’s not always the case. For example, if you move from a large home in the suburbs to a smaller place downtown, you may find the new urban location to be more expensive.

Some retirees come to regret the shift to smaller spaces, as it can be difficult to host family gatherings and accommodate grandchildren. And it can be pricey to move back into a larger home if you regret downsizing. “Reversing a house downsize will inevitably be costly, and retirees may find themselves buying back into an expensive suburban market that they had previously sold out of,” says Michelle Herd, senior client advisor at TFC Financial Management in Boston.

Rather than selling quickly, take some time to consider your lifestyle before downsizing. “This provides some flexibility in terms of getting to know how time in retirement will be spent, where it will be spent and with whom,” Herd says.

5. $1 million will provide a comfortable retirement. For years, building a $1 million nest egg was often considered a solid goal for retirement. However, that figure may no longer be accurate, due to longer life expectancies, increasing costs and active lifestyles. “There’s no one-size-fits-all amount of how much to save for retirement,” Myers says. “If you’re accustomed to a frugal lifestyle or you’ll be receiving a healthy pension, $1 million may be plenty to live on. If not, there’s a high chance it could be inadequate.”

6. I can withdraw 4 percent each year from my portfolio. The 4 percent rule refers to the concept of withdrawing 4 percent from a retirement account each year. The idea is that by following this strategy, you’ll be able to maintain a steady stream of income while keeping the funds sustainable for decades. “This may have been a reasonable standard in years past, but with increased life expectancy and recent challenges, many folks are largely underfunded for retirement,” says Tom Terhaar, an investment consultant with Conrad Siegel, a mid-Atlantic investment advisory firm. “Going forward, if individuals continue to subscribe to this rule, they may find themselves short of their goals.”

A better approach may be to consider withdrawing a lower percentage, such as 3 percent, each year. Talk to your financial advisor to fully evaluate your situation and determine the amount that will work best to cover your needs and sustain funds. You may also want to consider taking on part-time work to help avoid the risk of withdrawing too much from your portfolio during the early years of retirement.

7. I’ll save money by aging in place. Once you’ve settled in the home where you want to spend your retirement days, it may seem that avoiding a move to an assisted living center or nursing home will lead to substantial savings. Yet there could also be plenty of expenses to stay in your place and receive the right level of care. You might need to make modifications, such as putting in a bedroom on the main floor, adding a wheelchair entrance or bringing in home aides to help with cleaning or overseeing a health condition. “While you may be saving money by staying in your home, you could be spending even more on the care front,” Myers says.

So, which of these myths were you a believer of, and how has your view changed now? Or is there something else you can think of that wasn’t on the list? Let us know in the comments!

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