Today’s post focuses on a fifth critical mistake that business owners make when running their company: failing to adequately fund a retirement.
Answer the following questions to see if your company is vulnerable:
• Does the owner have investments other than his or her business?
• Will the business assets account for less than 25% of the owner’s retirement planning?
• Has the owner created income from more than four sources other than the business?
• Do any of the owner’s retirement assets have guaranteed returns?
• Has the owner had his or her retirement income projected or analyzed to identify shortfalls?
• In the past year has the owner spent more than one hour planning for retirement?
The more “no” answers, the greater the risk. How does your company look?
Changing technology and an increasingly global economy mean that competition in any business is never far away. While a business can be an important source of wealth to fund retirement, it shouldn’t be the only egg in your basket. Owners need to have a successful business and an adequately funded retirement. Unless you’re independently wealthy already, that probably means you shouldn’t reinvest every dime back into the business.
For example, every business owner should have a tax deferred retirement plan which lets them set aside some of the business income and grow it tax-free. And these are not limited to traditional qualified retirement plans. Solopreneurs can use a SIMPLE (Savings Incentive Match Plan for Employees of Small Employers IRA, a SEP (Simplified Employee Pension), or a Solo 401(k) plan.
If, like many owners, you do everything you can to reduce taxable income, then you are also minimizing the amount of Social Security wages that you’ll receive when you retire. Talk to your tax advisor and financial planner to see if you are being pennywise but dollar foolish.