Have you ever found yourself thinking that planning for retirement is out of your reach right now? Or have you ever caught yourself thinking, “I’m too far behind! What’s the point?” Or you may even be on the opposite end of the spectrum where you think, “I have plenty of time for that! I’ll worry about it later.
I get it. I think most business owners — and people in general — have been there at one point or another. But as self-employed business owners, planning for retirement is arguably even more important! There’s no company 401k to pay into, no match or guarantees. You are literally ON YOUR OWN.
So if you’re thinking that you don’t have enough cash to contribute to retirement, that it’s too late for you to successfully start planning for retirement, OR that you “have plenty of time,” then this post is for you.
Retirement Planning Step #1: What’s your goal?
The first thing you want to do when planning for retirement is have a goal in mind.
But this isn’t some arbitrary number! We’re living longer and longer as a society, and it’s important that we can set ourselves up to be fully supported in life whether our retirement lasts ten years or thirty. And I don’t know about you, but I don’t plan to work until I’m 65 or 70. I want to actually enjoy my retirement years while I’m still young enough to do so!
Take a look at your current lifestyle. How much are you spending each month? How much do you want to continue to spend?
The last thing you want to do is get to retirement and have to completely change your everyday life in order to cut back on expenses.
If you can, take a look at the things you also want to be doing in your retirement. If you plan to use your golden years to travel (ahem, as yours truly plans to), you’ll need the finances to do so.
Also think about your lifestyle in general. Do you plan to downsize your home? Do you want to live closer to your grandkids? Will you want to give to charitable causes? All of this will affect your retirement plan and, therefore, your goal!
Retirement Planning Step #2: Automate your retirement savings
Second, you want to have regular, automated contributions.
Retirement savings is like paying your future self. You want to make sure you don’t neglect your retirement accounts, which is why I recommend doing some math and seeing how much you want to contribute on a monthly, quarterly, or annual basis.
In my opinion, monthly is best because it will break down your contribution into smaller, more manageable pieces. But there are also justifications for waiting to make an annual contribution based on your business’s profit from the year before.
Without getting into all of the nitty-gritty details and specific amounts (because we’d need almost all day for that), I want you to know that there are many types of retirement accounts out there.
I’m personally a fan of anything ROTH (R-O-T-H), but you can run into income limitations. There are also retirement vehicles that are available to you specifically as a business owner, and those different types of retirement vehicles can have varying effects on your business’s income taxes.
I highly recommend that you discuss this with a financial advisor and tax strategist to make sure you’re contributing the right amount to reduce your taxes while also following all of the retirement contribution rules.
The key takeaways here are that 1) You have options and 2) You need to be consistent.
Retirement Planning Step #3: Always have an exit plan
Next, you want to have a business exit plan in place.
Your goal in retirement is to be completely hands-off in your business, whether that means selling it or putting structures in place that allow others to take over your day-to-day responsibilities.
The earlier you start planning for this, the better! I want you to think about setting concrete goals for where you want the business to be by the time you’re ready to retire (and what that age is for YOU!), and then plan backward in order to achieve those goals.
Make sure you’re hiring great people now (and get those systems set up)! If you’re still a few decades away from retirement, these probably won’t be the people you hand your business over to. But when you create good hiring practices & systems early on, you help ensure that those hires are replaced with other great hires.
Also, it’s a good idea to work with an attorney to plan your business succession. And if you don’t plan to hand your business off, you may want to consider selling it or dig into what’s required to shut it down entirely. Hint: there can be tax implications based on your exit strategy too.
Retirement Planning Step #4: Know your biz numbers
And lastly, you need to know your business numbers inside and out.
What’s your annual revenue? Profit? Profit margins? Knowing every number in your business and having it easily accessible is vital in preparing a retirement plan and saving properly for your ideal life after work.
As a tax strategist, I’ve had so many clients ask me for straightforward ways to figure out their business numbers so they can make sound financial decisions, including determining how much to save for retirement.
I’ve actually created a template for business owners like them — and you. It’s called the Know Your Biz Numbers template, and it lets you calculate your business’s most important money metrics in minutes.
With this template, you’ll easily be able to record income and expenses, profit and loss, view year-to-date totals, AND track your pay!
If you’re ready to get on the road to planning for retirement, make sure to go here and grab the Know Your Biz Numbers template! This is the first step in figuring out how much you can start contributing NOW to your goal retirement amount.
