Five tips to get you planning for retirement
by Curt Zaske a business banking manager and market president for Wells Fargo
As a small-business owner, it might seem like you spend a lot of time on day-to-day planning. Your planning time today might consist of setting next month's sales appointments, placing orders for this quarter and projecting expenses for the year ahead. But how much time have you dedicated to developing and maintaining your retirement plan?
When it comes to retirement, the earlier you start planning, the better off you will be long term. According to the Wells Fargo/Gallup Small Business Index, more than half of business owners said they aren't ready to sell their business or quit working and 55 percent are worried that they will not have enough money in retirement. As the economy continues to improve, however, more business owners might feel that retirement isn't as far off in the future as it once seemed.
Today, more than ever, there are many retirement planning resources and tools available to small-business owners. The size of your company will play a role in determining your personal and business retirement strategy, including whether or not you finance retirement plans for employees, but the good news is there's likely a plan that can meet your needs.
Here are five tips to help you start thinking about retirement planning:
•Define what retirement means to you. For business owners who aren't ready to face full-time retirement, a scaled back role might be the ideal way to slowly step back from the business. There are many advantages to this approach, including building additional income and delaying Social Security benefits, but it's important to establish clear parameters that will support this plan. Take time to outline what retirement means for you, and build that into your plan.
•Set retirement goals and objectives. Explore business and personal goals, and set a target retirement date that makes sense for you and your business. This can include learning more about your personal financial situation, identifying business transition options and, if you have employees, understanding who will be affected by your retirement.
•Get familiar with available contribution plans. Fortunately for small business owners, there are a variety of retirement plans available to help with future planning. From profit-sharing plans that offer you and your employees a portion of your annual profits to IRAs and 401(k) plans, there are many choices. Make time to meet with your financial adviser and your tax adviser to find a plan that works for your business.
•Create a retirement income plan. The money you save now needs to be enough for 20 to 30 years of retirement. Take advantage of catch-up rules, which allow people in their 50s to contribute an additional amount. Work with a financial adviser and a tax or legal adviser to determine how much money you should put away now and when you should plan to start withdrawing your savings.
•Review strategies for financing the transition into retirement. In the Wells Fargo/Gallup survey, 59 percent of owners said they plan to either sell their business or transition it to a family member. Most of these transitions will involve some form of financing, and oftentimes, sources and uses of available funds can determine or limit an owner's options. Do you have a succession plan in place? Does your business carry any debts? Will you have funding from an equity sponsor, such as a commercial bank? These are important questions to ask as you develop your retirement plan. Meet with your banker to learn more about your financing needs and product choices.
While planning for retirement can be complex, it doesn't have to be a difficult or stressful experience. After you've developed a retirement plan, take time to review and update it annually to ensure you're staying on track.
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