Home-based business owners have their work cut for themselves on a day-to-day basis. There are so many things they need to plan ahead and adapt on the go, which it is understandable when they forget about planning for one all-important aspect of their lives: retirement.
Yes, no matter how passionate you are about running your business, there comes a day when you will want to stop working, enjoy your golden years and be financially secure. However, if you do not start planning ahead of time and saving up, you may be forced to keep working, just to make ends meet. This is not a pleasant prospect, so today we will discuss about how to prepare for retirement.
As an entrepreneur, you cannot count on a retirement plan the way employees can. You need to learn how to save and invest money, how to protect your retirement fund from any kind of claims, and how to be consistent in your savings. When it comes to retirement, there is one simple rule: the sooner you start saving, the better off you will be when you decide to retire.
Here are a few ideas to help you start planning for your retirement:
1. Understand Your Future Financial Needs
In traditional retirement planning, there is the golden statement that 70% to 80% of your monthly earnings during your active years are sufficient as retirement income. However, this rule is not always applicable to entrepreneurs. There are good months and bad months. There are months when you make a decent profit, and months when you barely break even.
You need to learn how to estimate your future needs, based on your spending habits and your revenues. There are various online calculators available, such as the T. Rowe Price, the Motley Fool, or the FireCalc. These applications show you an estimate of how much money you will need upon retirement, or how adequate your savings plan is, compared to your financial needs, after retirement.
2. Take Advantage of All Tax Reliefs
One way of saving money and running your business successfully is always being aware of what and how much you can deduct on your tax return. Retirement savings are deductible, and it is up to you to learn the statutory levels applicable in your state, and for your marital status.
3. Try to Grow Your Business. It Is Good for Your Retirement
The bigger the business, the greater its credit and the more advantageous the terms of retirement savings plan, offered by various institutions. This is one golden rule for everyone running a business. There is a vast difference between applying for a savings plan as sole proprietor, and as the owner of an LLC with a number of employees. Group plans are always more flexible and advantageous in terms of initial set-up and ongoing fees. Plus, if you offer a retirement plan in your package of benefits, you stand greater chances of recruiting talented and experienced people who will help you grow a successful company. It is a win-win situation for everyone involved.
4. Consider Your Exit Strategy
In terms of planning for retirement, a critical consideration is how you plan to part with your business. Will you hand it down to a family member to continue running it? Will you sell it, or your participation in it? Or will you liquidate the company? It is important to discuss these options with a qualified financial advisor, because your choice will impact your future finances, tremendously.
5. Sign-Up for an Adequate Retirement Plan
There are various retirement plans available for home-based and small business owners. The most frequently used are the Simple-IRA, the 401(k) plan, and the Keogh profit-sharing plans. Depending on your circumstances, one may be more adequate than the other. A financial advisor will be able to explain the differences, benefits and drawbacks of each plan, and help you select the best one for you.