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Thayer Partners Blog

3 Things Business Owners Need to Know about Saving for Retirement

[fa icon="calendar"] Dec 16, 2016 9:00:00 AM / by Chris Wilmerding

Chris Wilmerding

3-Things-Business-Owners-Need-to-Know-about-Saving-for-Retirement.jpgBusiness owners are constantly juggling day-to-day tasks to keep their companies afloat and growing. They must meet payroll, take care of endless paperwork, serve customers, ensure quality control, and cope with unexpected issues and crises. When there are so many immediate priorities demanding attention, it’s easy for busy business owners to forget to focus on the future, especially when retirement is 10 or 20 years away. It’s no surprise then, that  almost half of small business owners don’t have a retirement plan.

As a business owner, saving for retirement is going to be more complex for you than it is for other people. There’s a lot more to think about, including multiple sources of retirement income, a potential business sale, succession issues, and tax considerations.

Here’s what all business owners should know about saving for retirement.

1. You Must Start Planning Early and Develop Your Exit Strategy

Though everyone can benefit from planning for retirement early, this is especially important for business owners. You not only have your own personal finances to manage, but the finances of your business as well. You need to plan your retirement early in order to develop your exit strategy.

There are many things to consider when it comes to your exit strategy. Will you sell your business in order to fund your retirement? Will you hand over the reins to a business partner, executive, or family members? Or will you sell to a competitor? In order to get the most out of your biggest asset, it’s important to get a business valuation to know how much your business is truly worth before you sell it. Waiting until the last minute to plan your exit strategy can mean that you’ll be forced to sell your company at a lower value or as a distressed sell. And this can ruin your retirement plans.

2. You Can—and Should—Use Your Company’s Profits to Fund Your Retirement

You never know what the market will look like once you retire. You don’t know if anyone will be willing and able to buy your business. So you shouldn’t plan your entire retirement around the sale of your business. Instead, you should use your company’s profits to help save for your retirement as you continue to run and grow the business. Establishing a 401(k) or Simple IRA plan can help you and your employees build a nest egg for retirement.

3. Use Tax-Saving Strategies

Once you retire, the majority of the tax deductions that you’ve grown used to will vanish. And you could end up giving up considerable amounts of your savings to the IRS. As a business owner, you may make too much income to be able to contribute directly to a ROTH IRA, but there are ways around these. You can convert your traditional IRA funds to a ROTH IRA, slowly over time, in order to pay taxes on the funds outside of the retirement. Other tax-saving strategies for high-income earners to consider using include using software to determine the most tax-efficient withdrawal strategies for your unique circumstances and purchasinga universal life insurance policy.

Get Help Saving for Retirement: Engage a Financial Planner

As we mentioned earlier, saving for retirement can be overwhelming and complicated for business owners. It can be highly beneficial for you to engage a financial planner. The advisor will have the experience and expertise required to help you build wealth, create retirement goals, choose the best savings strategies, and save enough for a comfortable retirement. In addition, a financial advisor can help you maximize returns and slash costs for your company’s 401(k).

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Topics: Retirement

Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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