8 Things to Know About Retiring as a Business Owner
Disclaimer: This post is sponsored by PSECU, a Pennsylvania-based credit union.
Many business owners consider their companies their babies, and deciding to let them go proves as difficult as sending their first child off to college. One way or another, either through death or infirmity, the time will come to pass the torch to someone else. What can you do to ensure your legacy lives on after you leave?
More importantly, how can you secure your own retirement free from financial stress? It all begins with planning. The sooner you start preparations for departure, the easier the transition will be when the time comes. Here are eight tips for ensuring your vision goes on and you remain economically comfortable for the rest of your life.
- 1. Consult with an Exit Planner
When it’s getting close to retirement time, consult with a certified exit strategist to start putting your affairs in order. If you opt to close your doors, the taxing authorities provide checklists for what you must do to avoid personal liability. Your planner can help you complete these items.
If you plan to pass your business down through your family or sell it, exit planners can help you organize your books to ease the transition. You can demand a higher price if your affairs are well in order and the buyer can easily pick up where you left off. The good news about selling a business is that there’re a plethora of avenues, including business sales website in Australia that will allow you to sell your business at the highest bidder.
- 2. Pay Down Any Personal Debt
One easy way to maximize your retirement savings is to pay down debt before making the transition. That way, you’re not stuck paying expensive personal loans and credit cards out of your monthly allowance.
If you have a mortgage on your personal residence, aim to pay it off before retirement. If you’re one of the 3 million Americans still paying student loan debt as you near your golden years, strive to settle that, too.
- 3. Start Saving Early
The earlier you begin saving for retirement, the better. If you’ve established a SEP IRA, you may contribute 25 percent of your income up to the $56,000 max for the 2019 tax year. If you have a SIMPLE IRA, you can contribute up to $13,000.
Know you can combine a SEP IRA with a 401(k) plan. This proves beneficial for different needs. For example, many 401(k) plans allow you to take loans against them, whereas SEPs do not.
- 4. Calculate Your Income Needs, Including Social Security
Experts advise you’ll need 70-85 percent of your preretirement income to live comfortably after you leave your business. To find out your monthly income, you’ll need to combine the amount you anticipate receiving monthly from investments with what you’ll receive from Social Security. Many retirees realize approximately $16,000 per year from Social Security, and you can work with this figure as a baseline.
- 5. Move Investments to Lower-Risk Vehicles
The time for investing in risky growth stocks occurs when you’re young. As you near retirement age, speak with your financial planner to begin moving your investments to lower-risk vehicles like blue-chip stocks and mutual funds. You want the value of your investments to continue growing to keep pace with inflation, but you don’t want to risk the majority of your retirement kitty on a bubble that bursts.
- 6. Estimate Your Level of Continued Involvement
Sometimes, business owners choose to pass the torch to another but maintain partial involvement in their enterprise during their retirement years. Some do so because they wish to stay relevant in their field for their mental health. Others simply can’t imagine just playing golf until the end of their days.
If continued involvement is your yen, clearly outline the scope of your duties in writing. The last thing you want is to end up working overtime after you’ve moved on to a different life stage. Specify what you’re willing to do or not do. It’s hard to cede control, but everyone deserves a bit of a break after a lifetime of grinding.
- 7. Develop the Line of Succession
If you sell your business or close your doors, you need not worry yourself with succession. If you have multiple children you wish to inherit, clearly outline who will have managerial responsibility in your business and who will remain silent partners. Involve your children in the decision-making process. While you may imagine passing on your legacy to your firstborn son, if you run an accounting firm and he’s an artist, he may not appreciate his inheritance. You can always find other ways to compensate heirs who do not want to follow in your footsteps.
- 8. Hire an Attorney to Review All Details
Finally, before you pack up your file box and leave for the last day, consult with a competent attorney to ensure everything is in order and nothing went overlooked. Have her review the sales contract or the will if passing the business down. Ensure current staff feel at ease with the transition and know what to expect regarding any potential changes to their positions. Your attorneys should also make sure all liabilities have been paid or assumed by the buyer, if selling.
- Retiring from Business Gracefully
Saying goodbye to the love child you built with your bare hands isn’t easy, but growing older is inevitable. When it’s time to retire from your business, make the transition as smooth as possible by following the tips above.