Whether you plan to retire in three years or 30, having a retirement plan in place for your business is essential. Starting a business close to retirement can be terrifying for many older entrepreneurs who choose this path.
Taking that leap of faith without a concrete understanding of the long-term financial implications to starting a business is understandably a barrier to getting started. You may ask yourself, “What about health insurance? Do I need to drain my retirement savings? Do I still qualify for Social Security benefits?”
Retirement plans aren’t a one-size fits all. You need to create a retirement plan that works for yourself and your business. Here are five steps for creating your retirement plan.
Consider a financial planner
If you haven’t already, now may be a good time to sit down with a financial planner to help 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 reference investment returns, Social Security, and inflation rates to best calculate your monthly savings goal.
Choose a retirement plan
There are a variety of retirement options available to your small business, each with their own advantages. 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 works best for your business and handle the necessary paperwork.
Review 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 and long term care are all necessary when evaluating your retirement plans. If you aren’t yet eligible for Medicare but still working full time, you can sign up and pay for continuation of coverage (COBRA) through your employer, which can cover you for 18 months. Be mindful there are special enrollment periods that can end coverage when you leave a job. You can also purchase individual coverage at www.healthcare.gov.
Create a succession plan
Whenever you choose to step down, creating a succession plan to legally pass on your business, whether to your spouse, children, or business partner is crucial. An increasingly common succession plan is selling your business into employee ownership. A solid succession plan can allow you to smoothly hand off the baton to someone you know will be able to take your hard work, dedication, and values for the business into the future. From choosing a successor, getting an accurate value for your business, and completing all your legal requirements, make sure that your business legacy is secure after you’re retired.
Keep updated financial records
When retirement is approaching, it is also important to have a proper valuation of your business. If you’re selling your business, you want to get a fair value for it, making it essential to keep updated financial records. Review your financial records thoroughly, make sure you maintain backups, and keep track of bonuses, sales tax, petty cash, and other sources of income/expenses 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 you also work toward making your business flourish at the same time.
This article was written by Rhett Buttle from Forbes and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].
