(BPT) - Small businesses are the backbone of the American economy. In fact, the number of small businesses in the United States has increased 49 percent since 1982, according to the U.S. Small Business Administration, and the 23 million small businesses in America today account for 54 percent of all U.S. sales.
“For many people, owning a small business is part of the American dream – although it takes long hours and extreme dedication, it’s very fulfilling to build something from the ground up,” says Douglas Dubitsky, vice president, Guardian Retirement Solutions. “That being said, even the most devoted small-business owner wants to retire eventually, and the process requires a lot of planning that is unique to being an independent worker.”
What is the main strategy small-business owners are using to fund their retirement? The Small Business Owners Retirement Readiness Study from Guardian found that many small-business owners plan to sell their businesses to get the money needed in retirement. Thirty-five percent of respondents are counting on the sale of their business to be financially prepared for retirement. The problem is that few – only 17 percent – have identified potential buyers for their business.
All small-business owners can do more to prepare for retirement and feel confident in their future plans. However, the study uncovers that female small-business owners are more likely to acknowledge that they are not as confident and financially prepared for retirement as their male counterparts (45 percent vs. 56 percent). Overall, if you own a small business and are starting to think about retiring, there are several things that should be addressed now to successfully prepare for your golden years. Dubitsky suggests you start by asking these questions:
1. What is your vision for retirement?
Take some time to thoroughly think about what you would like for your retirement years. How do you want to live and what do you value most? There are several questions you need to ask yourself as you prepare for this journey. On www.myretirementwalk.com, you can take a “Vision test” to assess how you may approach planning for this long-term journey.
2. When do you want to retire?
Do you want to retire in five or 15 years? Some small-business owners have spouses who are already retired and therefore the need for a solid exit plan is even greater.
3. What will become of your business?
Do you plan to sell the business or transition ownership to a family member? If you are a co-owner, will you sell your share of the company to the other owner? Do you want to stay involved in any capacity afterward? Who will help to ensure a seamless transition? Create a business succession plan and modify it as necessary as time passes.
4. Which financial professional is your best ally for retirement planning?
The right financial professional can provide expert insight to help you develop a comprehensive plan that addresses your needs and goals, particularly to help you build a retirement income strategy. Make sure this individual creates clear steps for how each goal can be achieved. Ultimately, think about what sources of guaranteed income are set up to cover your core expenses in retirement (such as health insurance, living expenses, etc.).
5. Do you know how long your retirement will last?
If you are successful in selling your business, then how do you make that "windfall" last throughout your retirement so you do not outlive your money? People are living longer healthier lives and that retirement can be as long as 20-30 years. During retirement you’ll need an income plan that can last for an unknown time period.
“Small-business owners are risk-tolerant and feel that having their own business is the best way to create the wealth they want,” says Dubitsky. “However, it is paramount that these individuals build an exit/retirement strategy to meet their needs during a 20 plus year retirement while ensuring their desires for the future of their business are fulfilled.”
Preparing for your retirement, years beforehand, is the foundation to a worry-free retirement.