March 15, 2017 - Retiring While Owning a Business

March 15, 2017

Being a small business owner is a unique life experience that can provide many personal and professional rewards, such as being in control of your career. But, this also brings specific financial challenges when creating a path to retirement. As a business owner, you should put important strategies in place before you’re ready to retire, so you can exit your business when and how you want. Read on for some brief reminders on how to plan for challenges and opportunities you may find as you prepare for life after your career.

Remember to Save for Retirement

Here is a potential reality shock for you: According to a BMO Wealth Management survey, 75% of small business owners have saved less than $100,000 for their retirement.1 That means only a quarter of small business owners may be financially preparing themselves for their retirement years.

Considering that a retiree today may need as high as $350,000 in retirement for healthcare costs alone (depending on how healthy they are or aren’t), many business owners savings' wouldn't even cover their medical needs.2

Further, if you are relying on selling your business to fund your retirement, you may be left unable to make that vision a reality. In fact, only 20% of companies listed to sell successfully find a buyer.3 As a result, up to 28% of business owners have stated they would delay retirement if they could not sell their business or receive the proceeds they needed.4 So, having adequate savings and other backup financial strategies can help you diversify your retirement funds, should certain goals not pan out as you expect.

Ask yourself:

  • How much have I saved so far for retirement? Knowing the true value of your savings can help you also identify how this sum will help or hinder you future income goals.
  • How long do I want to keep working? The difference between how long you will work versus the time you spend in retirement can help you create a real picture of the amount of years you need to financially cover.

Consider How Your Cash Value Life Insurance Can Help You

If you hold permanent life insurance, such as whole life, then you have probably built cash value in your policy. For business owners with a retirement-income gap, you may want to consider using your insurance’s cash value as a financial strategy.5 Not only can taking income from your life insurance help you avoid increasing your tax bracket, it can also provide you with immediate funds — that you can delay paying back.6

In addition, should the stock market fall early in your retirement, you can draw from this income without having to sell your investments in a down market.7

Ask yourself:

  • How much cash value have I built up in my policy? Identifying how much money you have available will help you identify how large a gap this income could fill.
  • How much longer will I hold this policy? Remember, not paying back your cash-value loan plus interest before you distribute your policy has consequences: You will decrease the amount of distributed benefits in order to settle the loan.8 So, making sure you have enough time to pay back that cash value is part of a sound borrowing strategy.

As a business owner, your financial needs are uniquely yours — and which strategies help you retire from your business when you hope to will depend on your specific goals and income needs. If you’d like to explore how prepared you are to retire, feel free to contact us today. We’re ready and happy to talk.