Whether you plan to retire in three years or in 30 years, having a retirement plan for your business is essential. Starting a business nearing retirement can be terrifying for many older entrepreneurs who choose this path.
That leap of faith without a concrete understanding of the long-term financial implications of starting a business is understandably a barrier to getting started. You may be wondering: what about health insurance? Should I drain my retirement savings? Am I still eligible for social security benefits?”
Retirement plans are not one-size-fits-all. You need to create a retirement plan that works for you and your business. Here are five steps for creating your retirement plan.
1. Consider a financial planner: If you haven’t already, now might be a good time to sit down with a financial planner to determine what you need to do today to save and invest to live the way you want to live in retirement. Other tools like the AARP Retirement Nest Egg Calculator can help you consult investment returns, social security and inflation figures to best calculate your monthly savings goal.
2. Choose a retirement plan: There are several retirement options available for your small business, each with their own benefits. According to the Department of Labor, they can be divided into two main categories: IRA-based plans and defined contribution plans. A financial planner can help you determine the retirement plan that is best for your business and handle the necessary paperwork.
3. Check out health and life insurance options: Once you retire, your health and life insurance coverage will inevitably change. Considerations such as the right life insurance policy, disability insurance/benefits, and both short-term and long-term care are all necessary when evaluating your retirement plans. If you are not yet eligible for Medicare but are still working full time, you can sign up and pay for Continuing Coverage (COBRA) through your employer, which can cover you for 18 months. Please note that there are special enrollment periods that may end coverage when you leave a job. You can also buy individual covers at www.healthcare.gov.
4. Create a succession plan: When you choose to resign, making a succession plan to legally transfer your business whether to your spouse, children or business partner is crucial. An increasingly common succession plan is selling your employee owned business. With a solid succession plan, you can smoothly pass the baton to someone who you know can take your hard work, dedication and values for the company into the future. From choosing a successor, getting an accurate value for your business, and meeting all your legal requirements, make sure your business legacy is safe after you retire.
5. Keep Updated Financial Records: As your retirement approaches, it is also important to properly value your business. When you sell your business, you want to get a fair price for it, making it essential to keep up-to-date financial records. Review your financial records thoroughly, make sure you have backups, and keep track of bonuses, sales tax, loose change, and other sources of income/expense that are not always considered when tracking cash flow.
Being prepared is critical to running any business and retirement planning is no exception to this rule. These steps can help you plan for the future while simultaneously working to make your business thrive.