Retirement Planning for Small Business Owners: Five Planning Strategies for the Future

As a small business owner, it's important to plan for your retirement. Without the safety net of a corporate pension plan or, in some cases, an employer-sponsored 401(k), small business owners must be proactive in preparing for their financial future. This is especially necessary when you have unique needs like planning to sell or pass on your business.

1. Start Planning Early
   One of the biggest mistakes small business owners make is waiting too long to start planning for retirement. The earlier you start, the more time you have to save and invest. It may be a good idea to research affordable company-sponsored retirement savings plans for yourself and employees fairly early in your business’s life cycle. Even if your business is already maturing, you can start taking advantage of tax-deferred retirement savings plans, such as a 401(k) or an Individual Retirement Account (IRA).
   
   
2. Set Up a Retirement Plan
   As a small business owner, you have several retirement plan options to choose from. Some popular options include:
   
   401(k): A 401(k) plan allows you and your employees to save for retirement with tax-deferred contributions. You can choose to match your employees' contributions up to a certain percentage or a fixed amount or offer no matching at all.
   
   SEP-IRA: A Simplified Employee Pension (SEP) plan is a tax-deferred retirement plan that allows you to make contributions for yourself and your employees. SEP-IRAs are easy to set up and have low administrative costs.
   
   SIMPLE IRA: A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a tax-deferred retirement plan that allows you to make contributions for yourself and your employees. SIMPLE IRAs are easy to set up but have lower contribution limits ($15,500 for savers under the age of 50 and $19,000 for savers 50 and older as of 2023) than 401(k) plans ($22,500 for savers under the age of 50 and $30,000 for savers 50 and older as of 2023).
   
   A financial planner or tax professional can help you determine which retirement plan is best for you and your business.
   
   
3. Maximize Your Contributions
   Once you have a retirement plan in place, it's important to maximize your contributions each year. The more you contribute, the faster your retirement savings will grow. Many business owners spend their prime working years investing money back into their business, often at the cost of retirement savings. As you reach your 50s, when maximum contributions on retirement savings plans drastically increase, it may be in your best interest to significantly increase your contributions.
   
   
4. Diversify Your Investments
   As a small business owner, it can be tempting to invest all your retirement savings in your business. However, it's important to diversify your investments to reduce risk and maximize returns. Consider investing in a mix of stocks, bonds, real property and mutual funds to create a diversified portfolio that matches your risk tolerance and financial goals. A financial planner can help you create a diversified investment strategy that meets your needs.
   
   
5. Review and Adjust Your Plan Regularly
   Retirement planning is not a one-time event. It's important to review and adjust your retirement plan regularly to ensure that it stays on track. Review your retirement plan at least once a year to make sure you are on track to meet your goals. If your financial situation or goals change, adjust your plan accordingly.

Powerful Strategies for Small Business Owners

Retirement planning is essential for small business owners who want to ensure their financial security in the future. As much as you may want to pour 100 percent of your energy into your business, it’s worth spending a few hours now and a little bit of time every year reviewing how your retirement savings plan is performing and whether you’re on track to achieve your unique goals.

Starting early will allow you to benefit from the miracle of compound growth and help you survive any volatility or sudden economic downturns down the road. Setting up a retirement plan for you and your employees can help you earn tax-deferred interest on your retirement savings and be a powerful benefit for recruiting good job candidates.

Maximizing your contributions helps maximize tax benefits, especially as you near retirement and are eligible for catch-up contributions. Diversifying your investments lets you reduce the risk of a downturn in your business impacting when and how you’re able to retire. Finally, by reviewing and adjusting your plan regularly, you can take control of your financial future and achieve the retirement lifestyle you want.

Fullerton Financial Planning has helped dozens of small-business owners feel confident in their retirement future. We can help you make informed decisions and create a retirement plan that meets your unique needs. Click here to find out more or call us today at (623) 974-0300 to get started.