How to Prepare for Retirement as a Small-Business Owner
Want an easy transition into retirement? Then make sure you plan and prepare with these useful tips
For many small-business owners and entrepreneurs, their key objective is to build and grow their business, ploughing in all their investments to make it a roaring success. What is often overlooked, however, is their own wellbeing, especially retirement plans.
Define your retirement goals so you have a focus
Whether you’re planning to escape to another country once you’ve retired, or simply to retreat to the back garden, it’s important to estimate how much you’ll need to live on. “You are limited to the amount you can fund a pension and obtain tax relief – this is a function of your earnings and specifically high earners are limited,” says Maxwell. “Also, there are instances where you may wish to cease funding if your fund reaches a high level.”
With the most you can get from Australia’s age pension being just $826.20 per fortnight for singles or $622.80 per fortnight for couples, it’s crucial to save as much as you can in either a private fund or other investments. The government’s super and pension age calculator and retirement planner are useful tools for estimating what you can expect to receive in repayments, whatever age you start paying into a fund, and what happens to the value of your fund if you delay payments for a number of years.
Whether you’re planning to escape to another country once you’ve retired, or simply to retreat to the back garden, it’s important to estimate how much you’ll need to live on. “You are limited to the amount you can fund a pension and obtain tax relief – this is a function of your earnings and specifically high earners are limited,” says Maxwell. “Also, there are instances where you may wish to cease funding if your fund reaches a high level.”
With the most you can get from Australia’s age pension being just $826.20 per fortnight for singles or $622.80 per fortnight for couples, it’s crucial to save as much as you can in either a private fund or other investments. The government’s super and pension age calculator and retirement planner are useful tools for estimating what you can expect to receive in repayments, whatever age you start paying into a fund, and what happens to the value of your fund if you delay payments for a number of years.
Develop a plan to sell your business or hand it over
Once you’ve determined how much you need to achieve for your retirement plans, you can work out whether you need to sell your business and for how much, or whether to hand it over to an heir or employee for them to continue. While it might be incredibly hard to imagine relinquishing control of your business, planning ahead will prevent any major headaches in the future. Start preparing for the sale of your business at least three to five years before you want to retire, and ensure the last two to three years of finances are in shape so your business looks attractive to buyers.
Once you’ve determined how much you need to achieve for your retirement plans, you can work out whether you need to sell your business and for how much, or whether to hand it over to an heir or employee for them to continue. While it might be incredibly hard to imagine relinquishing control of your business, planning ahead will prevent any major headaches in the future. Start preparing for the sale of your business at least three to five years before you want to retire, and ensure the last two to three years of finances are in shape so your business looks attractive to buyers.
Establish a team of trustworthy professionals to give you advice
Maxwell warns that if you’re planning to sell your business to fund your retirement, this could be risky and can backfire, particularly if you aren’t aware of the tax implications of selling a business. “Consider the impact to you if you can’t sell the business, or worse-case scenario, if the business fails. You also need to consider the costs of sale, tax and how this impacts on your return,” says Maxwell.
Placing all of your funds and efforts into one business or investment is considered to be a high-risk strategy as your plan will depend entirely on the success of your business. “The business could suffer a downturn and hence you may then need to completely rethink your future plans and income should this occur,” says Maxwell. “Diversification of investments is one means of reducing risk and increasing your options.”
To guide you through this financial minefield, it’s worth establishing a team of trustworthy professionals, such as an accountant and financial planner, who can support and assist you so you make the right decisions early on and not leave things to the last minute. “Financial planners look at an overall plan and the impact of success or failure,” says Maxwell. “Having the discussions about ‘what ifs’ will allow you to consider scenarios and subsequent strategies you may employ in these circumstances, so that you are prepared for these situations, should they occur.”
6 Reasons You Should Invest in Training Your Staff
Maxwell warns that if you’re planning to sell your business to fund your retirement, this could be risky and can backfire, particularly if you aren’t aware of the tax implications of selling a business. “Consider the impact to you if you can’t sell the business, or worse-case scenario, if the business fails. You also need to consider the costs of sale, tax and how this impacts on your return,” says Maxwell.
Placing all of your funds and efforts into one business or investment is considered to be a high-risk strategy as your plan will depend entirely on the success of your business. “The business could suffer a downturn and hence you may then need to completely rethink your future plans and income should this occur,” says Maxwell. “Diversification of investments is one means of reducing risk and increasing your options.”
To guide you through this financial minefield, it’s worth establishing a team of trustworthy professionals, such as an accountant and financial planner, who can support and assist you so you make the right decisions early on and not leave things to the last minute. “Financial planners look at an overall plan and the impact of success or failure,” says Maxwell. “Having the discussions about ‘what ifs’ will allow you to consider scenarios and subsequent strategies you may employ in these circumstances, so that you are prepared for these situations, should they occur.”
6 Reasons You Should Invest in Training Your Staff
Start making plans now
If you’ve chosen to take the freelance route because the freedom and flexibility of working for yourself outweighs the financial security of working for an employer, then you need to be in control of your own finances, including your retirement preparations, to avoid any money woes later in life when it’s time to slow down.
The best retirement plan for small business owners is specific to each person’s individual circumstances, so it’s important to research various options and consult with an expert before deciding. “At HFMC Wealth we advocate lifetime cash flow planning to help you understand how your money can be used to best meet your aims, and see whether you are able to take less risk, or need to take more risk, to achieve them,” says Maxwell. “We would then look at the strategies you could employ and pensions may be one strategy, but it’s not suitable for all.” Whatever route you take, one thing is for sure – there’s no time like the present, so start saving now!
Tell us
How have you prepared for your retirement… or would you like to do things differently? Share your experiences in the Comments below.
If you’ve chosen to take the freelance route because the freedom and flexibility of working for yourself outweighs the financial security of working for an employer, then you need to be in control of your own finances, including your retirement preparations, to avoid any money woes later in life when it’s time to slow down.
The best retirement plan for small business owners is specific to each person’s individual circumstances, so it’s important to research various options and consult with an expert before deciding. “At HFMC Wealth we advocate lifetime cash flow planning to help you understand how your money can be used to best meet your aims, and see whether you are able to take less risk, or need to take more risk, to achieve them,” says Maxwell. “We would then look at the strategies you could employ and pensions may be one strategy, but it’s not suitable for all.” Whatever route you take, one thing is for sure – there’s no time like the present, so start saving now!
Tell us
How have you prepared for your retirement… or would you like to do things differently? Share your experiences in the Comments below.
Read on for some handy advice for getting your finances in gear, and you’ll be on your way to a comfortable retirement.
5 Finance Tips for Small-Business Owners