6 Retirement Planning Must Do's for Small Business Owners

small business retirement
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Retirement is a time to relax and enjoy the company of family and friends, travel to places you’ve always dreamed of, and reap the rewards of a lifetime of hard work and discipline. However, for many small business owners, this kind of retirement does not come easy and requires careful planning and strategy.

As you start planning for retirement from your small business, ask yourself these questions:

  • How would I like to spend my retirement?
  • Do I want to pay off my mortgage?
  • Is leaving an inheritance important to me?
  • How will I handle long-term care?
  • Will I run out of money?
  • How will I position my finances for growth and longevity?
  • Will I outlive my money, and if so, do I have a plan in place for asset allocation?
  • Am I paying the lowest Social Security tax possible?

With the many important points to consider when creating an effective retirement income strategy, the following are six key components that will help provide the secure, enjoyable, and worry-free retirement you so desire.

1. Make plans to be around a long time.

With life expectancies at a much higher rate compared to 1935, when the original Social Security Act was passed, the average payout has increased from an average of 12-15 years in 1935 to the present. Today, the average 65-year-old has a 70% chance of living to age 85. This just reinforces the fact that Social Security is not meant to be a retiree’s sole income source and small business owners must take every precaution to ensure that Social Security taxes are kept under control.

2. Remember that healthcare expenses will increase.

The fact that we are living longer does not guarantee good health for the duration of our longer lives. In many cases, a longer life brings about chronic health conditions. While much credit for our longer lives goes to a more active and health-conscious lifestyle, and a decline in smoking, retirees today benefit from the many medical advances and prescription drugs.

This benefit does not come cheap. It has been estimated that a 65-year-old couple will need approximately $220,000 just for medical expenses through retirement. This is not including nursing home care. When putting a retirement income strategy in place, healthcare costs must be factored in. Retirement assets could take a hit and add additional cost, eating away at your nest egg.

3. Have a housing plan in place.

With fluctuations in real estate and potential drops in home equity, caution should be taken when placing all or most of your net worth in your home. Instability, and fluctuations in the housing market could negatively impact your retirement income. It is recommended to obtain a moderate mortgage and pay it off before you retire. This would give you the ability to downsize or use the equity balance to fund your retirement tax-free by the way of a reverse mortgage (at age 62 or older). Or you may want to stay in your home, take advantage of home mortgage interest deductions, and allow your home’s equity to provide an inheritance for your loved ones.  

4. Arrange for long-term care.

A longer life brings about a greater possibility of the need for long-term care or assisted living.

For you and your spouse, this kind of care can be costly. Medicare covers acute care, but, long-term residency is not covered. Medicaid covers long-term care, but before coverage kicks in, you will be required to “spend down” your assets. If you wait to purchase long-term coverage, you could be denied, considered high risk or be hit with high premiums.

5. Think about the effects of inflation.

The effects of inflation differ, as the tendency to spend on items that have a higher rate of inflation is more likely. It is predicted that health care spending will make up almost one-fifth of the U.S. economy by 2021, which equals an increase of 18% today. A larger share of older Americans’ budgets are devoted to medical care and housing. And although there may be a lower inflation rate on other expenses, the fact is that many things will cost more in time.

The potential impact of inflation upon your retirements is an important aspect to consider. Keep in mind the amount of income you will need, how inflation would possibly impact that income, and then plan accordingly.

6. Align your financial goals and retirement savings.

Although you can’t control what will happen in the market or when it will happen, you can distribute your retirement income in order to ease the impact that a down market could have. As a small business owner, you will want to consider your long-term retirement goals and desired accomplishments throughout.  Then make sure to enhance your growth opportunity by utilizing a variety of financial vehicles.

Small business owners may find saving for retirement a challenge, as they do not have the option of participating in traditional employee sponsored retirement savings plans. There are however several retirement savings options available of which small business owners can greatly benefit. Below are a few of these options:

These options, combined with traditional savings, are tools to help you meet the financial demands of a longer life span and the possible negative impact of inflation.

You may also want to consider continuing to work and delay drawing Social Security benefits. This will allow for more time to invest in a qualified retirement plan and draw a higher monthly Social Security benefit rate.

As a small business owner, how you benefit from Social Security will be based on how well you have managed your Social Security tax situation. Consulting a qualified CPA to help guide you in the right direction is highly recommended.

Retirement planning is not a subject to be taken lightly. Plan well and plan early to ensure that your retirement years are truly golden.


About the Author:

Reid Abedeen is a partner at Safeguard Investment Advisory Group, LLC. As an investment advisor, Abedeen has helped retirees for nearly two decades with issues including insurance, tax planning, long-term care planning, financial services, asset protection in addition to many other areas. He holds California Life-Only, Accident and Health licenses (#0C78700), holds a Series 65 license and is registered through the Financial Industry Regulatory Authority (FINRA). Reid is a family man who owes much of his fulfillment in life to his wife, Smyrna, and his three children, Yusef, Leena and Adam.