Savings and Retirement for Small Business Owners

“I want to work forever and never retire!” – Said No One, Ever

As a small business owner, your end-goal was probably not to work forever, but have you really thought about retirement? A recent business survey of 2,000 small business owners revealed that one-third of entrepreneurs don’t have a retirement plan. It doesn’t matter if you are just starting out as a small business owner, or if you are nearing retirement, you need to think about your “exit strategy” and how you can retire comfortably. In today’s blog, we’ll talk about a few key strategies for building up retirement capital.

How small business owners save for retirement:

You are probably more familiar with reinvesting your profits back into your small business, than investing in your own future retirement. However, start thinking about your own retirement as a required business investment. Here are some ideas of how to save for retirement:

Set a solid goal
- How much will you need to retire?
- How long do you have until you would like to retire? (May be different than when you CAN retire.)
- What will you do once you have retired?
  - If your goal is to travel, will you need additional funds?
  - Have you planned for a retirement home or assisted living?
- What is your exit strategy?
  - Will you sell your business, or will someone take over?
  - Will you shut your business down in order to retire?
- Build your support team
  - Make sure your financial advisors are on board with your plans
    - CPA
    - Financial Advisor
    - Insurance Advisor
    - Attorney
  - Decide how to invest and which programs you will use
    - Traditional IRA or ROTH IRA
    - Individual 401(k)
    - SEP IRA (Simplified Employee Pension Plan)

How can I save money for retirement when my small business is barely breaking even?

We know it sounds impossible: you can’t imagine saving money for retirement (or for emergencies) when you are running a very small profit margin (or even a loss). However, starting with the mindset of paying yourself first will go a long way in helping you achieve your retirement goals.

Pay yourself first!

The “Golden Rule” of successful entrepreneur’s states that you must pay yourself first. Before you pay any bills, employees or landlords…pay yourself first. Think of a personal savings as the first bill you must pay each month. You can even start small, say $100 each payday and put that money away in savings and a portion in a retirement plan. Overtime the amounts will add up and you’ll not only have an emergency fund, but you’ll have planned for your retirement.

Why should I pay myself first?

Dave Ramsey III is an American personal finance specialist who’s budgeting advice is world-renowned. He will tell you that paying yourself first sets up not only a monetary reward, but a psychological reward as well. When you pattern your brain for savings, you’ll achieve your goals. While we won’t get into Dave Ramsey’s steps to success, (although you should look them up!) we will tell you the advantages of paying yourself first:

It sets proper priorities
It’s easy (especially if you start out saving and it becomes automatic)
You can take advantage of the Dollar Cost Averaging (think retirement plans that grow)
It creates a health work/reward cycle
Saving first models proven financial strategies for success

How to get a tax credit on my Solo 401(k):

Did you know you can get a great tax credit for starting a 401(k) plan that benefits you and any team members that take advantage of the opportunity? Under the SECURE Act, small business employers can receive a tax credit (up to $5,000 per year).

For additional information, resources and tips on how to save for retirement; or for more information on retirement plans available to small business owners, please contact us at the Small Business Development Center – SBDC – Serving Paris area: Lamar, Hunt, Hopkins, Delta, and Red River counties.

Paris SBDC