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3 Things Entrepreneurs Need To Consider Before Retirement

Shannon Kennedy  |  January 4, 2024

Don’t let your retirement planning fall by the wayside as you grow your business. Here are the details on the retirement plan entrepreneurs need to create a financially sound future.

For women entrepreneurs, preparing for retirement should be a primary focus. Unfortunately, for many it is not. Women business owners are often so focused on growing their business that retirement planning falls by the wayside. If you own your own business, but haven’t started planning for the future, here’s a look at 3 things entrepreneurs need to consider before retirement.

Not Retiring = Not Realistic

According to BMO Wealth Management’s 2023 BMO for Women Report: The State of Financial Planning for Business Owners, 25% of women entrepreneurs say they do not currently have a transition plan for their business and have never considered a transition plan. One of the main reasons cited was that the business owners “did not plan” on retiring.

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It’s completely understandable. You’re working around the clock to grow your business and you probably took a huge risk in the first place to even launch it. How could you ever step aside and retire? However, not retiring is not realistic – we will all retire one day, after all. Even if you don’t want to retire, something outside of your control may force it upon you. That’s why planning for this inevitability can help make your retirement go smoothly for you, your employees and whomever may take over your business.

3 Important Things To Consider Before Retirement

Once you’ve come to the realization that you will eventually retire, it’s time to start devising a plan, which can be easier said than done. Women need to do a better job of building a succession plan and incorporating that into a comprehensive financial plan. This takes time, which likely is why only 38% of the women surveyed said they have a plan to prepare the next generation or key persons to take over their business in the future, for example. The retirement plan entrepreneurs need starts with three key action items:

1. Start Saving Immediately

There’s a lot of pressure to conserve resources for your business, even at the expense of your personal finances, but the key to saving for retirement is time. For every year that you save for retirement, you increase the power of compounding interest, which thrives over long periods of time. For example, if you start investing $200 per month at 25 years old – and we’re assuming a 6% rate of return – by the time you turn 65, you will have a nest egg worth $393,700. But if you wait until 35 or older to start saving $200 a month, even with the same rate of return, you will end up with almost half that — $201,100 — by age 65.

Even if only $100 per month, start saving for retirement now. And, if you can, max out your 401(k) plan each year.

2. Don’t Ignore Insurance

Do you have personal life insurance in case a partner or additional breadwinner dies? Do you have disability insurance to cover your personal expenses if you can no longer work? A major component of retirement planning is about preparing for the unexpected — even before retirement begins. A tragedy that occurs during your working years could affect your business and personal finances, which can hinder your ability to save for retirement.

Key person insurance (often called COLI, company-owned life insurance) is a life insurance policy purchased by the business on behalf of the business owner or top executive. The business both pays the policy premium and is the beneficiary of the policy. Key person insurance guarantees that even in the event of the death of the owner, the business can continue with the right funds.

Insurance can take on even greater importance when you’re an entrepreneur.

3. Formulate A Succession Plan

Only 68% of women have considered how to prepare the next generation or key persons to take over their business someday, according to BMO Wealth Management’s 2023 BMO for Women Report. Succession planning can have significant business and personal finance implications.

On the financial side, it’s simply a matter of making sure you have enough money to support you and your family if you ever step away from your business — either voluntarily or involuntarily. You may never want to step aside from your business, but an unexpected health emergency may leave you with no other option. That’s why planning for this possibility through savings, investments or various insurance policies is critical, even during the early days of your business when you’re barely off the ground.

Consider transition planning as a necessary tool to mitigate situations beyond your control and to assist in the success of your business. This will not only help you protect your loved ones but also your employees and company stakeholders in the process.

The future is now

If you can start and run a successful business, you can establish a transition plan. Think of it as a continuation of your dedication to your business and your staff. Don’t be afraid to ask for support from financial professionals who can help guide you toward a fruitful retirement.

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