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The Business Owner’s Dilemma: Retirement Planning

The Business Owner’s Dilemma: Retirement Planning

January 31, 2024

If you own a business, you have surely poured your heart and soul into building your company. No matter what service or product you provide, the satisfaction and continued patronage of your customers is something you value and cherish. 

Amidst the daily demands and endless to-do lists, however, one crucial aspect often takes a backseat – planning for your own retirement. 

This, what we call the business owner’s dilemma, is a real challenge, requiring careful navigation to ensure a secure future while nurturing your business.

While we are often thrown unexpected circumstances, we can prepare for the future as best as we can by considering several key strategies to help overcome this dilemma and achieve a successful retirement. 

Note that in planning your own retirement, you are also building a plan for the business to succeed in your retirement. Once your business has become a going concern (although many business owners never feel like it is, after a few years it typically is) you’ve added a new responsibility to your list. The US legal definition of person includes legal entities such as businesses.1 You’ve birthed a person in your business and you now have the responsibility to periodically step back from the day-to-day operations and make sure you are doing everything to care and protect for that person, your business, for the time when you are no longer willing or able to be the one running that business. 

In our experience, many business owners care deeply for their partners, their employees, and the community they serve. By intentionally and diligently thinking this through, you get to design and ensure your legacy. And you serve all those other stakeholders by doing so. 

Start Early with Your Retirement Goals: Time is your greatest ally when planning for retirement. Begin early by setting clear retirement goals, both financially and personally, to gain clarity on where you want to go as it will affect all other decisions. Determine how much income you will need, the lifestyle you desire, and the timeline for your exit from the business. Having specific goals in mind will provide a roadmap for your retirement planning journey. 

Build a Diverse Retirement Portfolio: Relying solely on your business for retirement funding can be risky. Diversify your retirement portfolio by investing in other assets such as stocks, bonds, real estate, or accounts like IRAs and 401(k)s. This process can minimize your risk and create a more stable foundation for your financial future. 

Succession Planning: Choosing the successor for your business is a big decision. Promoting within your company is often a safer option considering you may have years of experience working with this person which allows you a chance to get to know their personality, their management style, and their loyalty. You may consider other options like selling your business. Whatever you decide, by having a solid succession plan you will protect the legacy of your company while transitioning into your retirement. 

Secure Insurance: Ensuring your company has proper insurance coverage at all times is essential when preparing for the future. If you do not have insurance and a disaster occurs, you may be forced to pay for it out of pocket or with your retirement fund. Having adequate insurance for any unexpected occurrences protects your company and your savings. Note that if you have a partner(s) it’s essential that you do succession planning (which generally includes insurance) as the loss of a partner, in the absence of a plan, not uncommonly leads to the demise of the business. A side benefit of this contingency planning is that it can help you think through what you want to happen when you voluntarily leave the business.

These are just a few of the many ways you, as a business owner, can prepare yourself for a successful retirement. The business owner’s retirement dilemma requires planning and thoughtful decision-making. By starting early and implementing these steps as well as seeking help from a financial professional when making your plans, you will set yourself up for success. 

If you need help in the planning process for your retirement or assessing if your company has what it needs to prepare for your eventual retirement, Aha! Financial is here to help you navigate this overwhelming subject and make things clearer. 

Note: This information provided is for educational purposes only and should not be considered as financial or legal advice. Seeking guidance from qualified professionals is recommended for personalized and tailored succession planning strategies.

Aha Financial offers fee-based planning, wealth advisory services, and securities through Park Avenue Securities LLC (PAS) and insurance through The Bulfinch Group Insurance Agency, LLC. Fee-based plans may include tax and wealth planning suggestions, but we do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.  Investment Advisor and Registered Representative of PAS and insurance broker of The Guardian Life Insurance Company of America (Guardian), supervised from: 160 Gould Street, Suite 310, Needham, MA 02494, 781-449-4402. PAS is a member of FINRA & SIPC and a wholly-owned subsidiary of Guardian. Aha Financial and The Bulfinch Group are affiliated, but neither firm is an affiliate or subsidiary of PAS or Guardian. 2023-164117 Exp 11/25

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