Some baby boomers are thinking about starting a business in their retirement. However, retirement planning isn’t a priority for many entrepreneurs. Saving for retirement as a small business owner also isn’t as easy, as being automatically enrolled in a company 401(k) plan.
No plan. Some business owners say they’re just too busy to plan, whether it’s business planning, estate planning or financial planning. About 34% of small businesses owners don’t have a retirement savings plan, according to a 2017 survey of 1,960 small business owners by Manta, an online resource for small businesses owners. However, setting up a retirement account offers benefits, like tax breaks and the ability to earn compound interest.
Putting everything back into the business. Entrepreneurs won’t put their money into retirement, because they worry they’ll lose quick access, if they need it for the business. However, diversifying your assets can help you to better handle emergencies and save for the future.
Believing that the sale of the business is the retirement plan. Most entrepreneurs overestimate the value of their business and their ability to sell it, when they’re ready to retire. It may not be that easy. Plan with your head and not your heart—take the emotion out of it, and plan conservatively.
Poor business structure. Some entrepreneurs begin as sole proprietors and remain sole proprietors. However, not structuring your company as an LLC, can put your personal assets at risk. That can put your retirement at risk.
Not diversifying. If most of your net worth is in the business, you should seek out low risk investments for money outside the business and be sure to contribute to your own retirement plan, besides investing in the business.
Failing to save. Business owners can save up to 25% of their compensation or $55,000, whichever is less, in a SEP-IRA in 2018.
Using retirement savings to start a business. As baby boomers retire from their first careers, some will start businesses. It can be risky to take investments out of your retirement accounts to use as seed money, especially later in life, when there are far less opportunities to recover losses.
About the Author
Kyle Robbins is the founder and sole owner of The Law Offices of Kyle Robbins. He received his J.D. with honors from the University of Texas School of Law and his B.S. in Food Chemistry and Microbiology from Oklahoma State University.