# A Beginner’s Guide to Small Business Retirement Planning
As a small business owner, planning for retirement is crucial to securing your financial future. According to SBA.org, there are around 28.9 million small businesses in the U.S. Most of these small business owners do not know how to plan for retirement. The main reason is that they rely heavily on their business’s income, preventing them from thinking and planning ahead. They bank on their current income being their retirement plan. Nevertheless, it is the duty of the small business owner to set aside time for retirement planning.
In this beginner’s guide, we will explore six tips that will help small business owners get started with retirement planning.
## Why is Retirement Planning Important?
Retirement planning is essential for small business owners because it allows them to secure their financial future. Retirement planning can also help small business owners maintain their lifestyle post-retirement. Without proper retirement planning, small business owners risk losing their income and not being able to support their family or meet their financial obligations in their golden years.
## Retirement Planning Tips
Once you recognize the importance of retirement planning, it’s time to start putting a plan in place. Here are six tips to help you get started:
### 1. Figure out how much money you’ll need.
The first step to retirement planning is to figure out how much money you’ll need to live comfortably in retirement. This amount will vary from person to person, depending on the lifestyle preferred in retirement. You’ll need to consider where you want to live, what your source of retirement income will be, what age you want to retire, and how much you need to save each month to reach your goal.
### 2. Diversify your investments.
Once you’ve figured out how much money you’ll need, it’s time to create a diversified retirement plan. You have five major retirement investment options to choose from, and the best option should depend on the size or nature of your small business. The options are:
– Solo 401(k): This is a strong option for independent contractors and sole proprietors, as it allows you to make contributions to your retirement account as an employer as well as an employee.
– SEP IRA: SEP IRA plans allow you to accumulate a lot more money than traditional IRAs, and the amount of money you can invest in a SEP is based on your earnings.
– Roth IRA: In a Roth IRA, the investments grow tax-free, and the withdrawals during retirement are also tax-free. However, you pay taxes when you invest money into the account.
– SIMPLE IRA: If you are a business with 100 employees or less, you can set up a SIMPLE IRA. You also qualify for a SIMPLE IRA if your business is a sole proprietorship, and you are both the employer and the employee.
– Traditional 401(k): With a traditional 401(k), you can make employee deferrals, and anyone of age 50 and above can make catch-up contributions.
### 3. Don’t sell your business for a retirement strategy.
Small business owners should avoid selling their business for their retirement plan unless it’s part of a well-thought-out exit strategy. Selling a business can get complicated, especially if it’s a family-owned and operated business, and you may not get the value you are hoping for.
### 4. Have an exit strategy in place.
It’s essential to prepare a plan for when you retire. Small business owners must decide what will happen to their business when they retire. Will they sell the company? Or will they pass it on to their family? Or will an employee take over the company and buy out their interests? Figuring out your exit strategy can help you in making the right business decisions today.
### 5. Always approach tax planning strategically.
As a small business owner, you need to consider reducing your personal and business tax liability. Depending on the situation, you may need to make certain strategic business decisions to lower your tax liability. Therefore, it’s a wise decision to work with a financial planner and be proactive about reducing tax after you retire.
### 6. Hire professional help.
Retirement planning is more complex than it appears. To make smart investments, it is recommended to hire a certified financial planner and a third-party administrator. Qualified and experienced professionals can construct a retirement strategy based on your unique situation and goals.
## Conclusion
Retirement planning is crucial to small business owners’ financial well-being. By following these six tips, small business owners can create strategies that help them save for retirement and secure their financial future. Remember, proper planning is the key to success in any area of life, and retirement planning is no exception.
So, take the time to plan, diversify your investments, have an exit strategy in place, and get professional help to secure a comfortable retirement post small business ownership.