7 Ways for Construction Business Owners to Take Charge of Retirement
If you want your retirement to be just as successful as your business, there are plenty of ways to do just that. In order to set a goal, however, there are 7 specific steps you can take in order to achieve the retirement you have always dreamt about.
Create a succession plan. A realistic succession plan with a solid exit strategy is essential, especially if you’re counting on income from the business after you retire. Currently, only 36%of small business owners established some type of business continuation plan.¹ This is evidently a rather low number compared to the expectation of where the percentage should be. If the main goal is to have a successful retirement, especially one that is equally successful as your business, why not make a continuation plan? There is really no downside here.
Calculate how much income you’ll need in retirement. Having the retirement you envision requires knowing how much you need to save. Only 78% of small business owners plan to sell their businesses to fund their retirement.² Though that number may seem high, there isn't much of a reason as to why it shouldn't be higher. Everyone will have a different target number for their retirement, but if you have a business to sell, you may want to begin to account for the money you get in return for your business in your retirement savings.
Start saving. You can’t rely on your business as a retirement plan since you don’t know what the future holds, so be sure to have retirement savings outside of your business. This is slightly connected to #2 because it provides you with a look at your retirement goals without selling your business, which essentially makes you take a look at other forms of income and other ways to achieve a successful retirement outside of your business. About 25% of salable businesses end up having successful exits.³
Keep contributing to your retirement. Although it’s tempting to take a break from saving, that rarely works—instead, make small, consistent contributions over time, and you’ll save more than if you made larger contributions later. An easy way to do this is to make a list of all of your expenses and find where you are allocating a little too much money (or where you can cut down spending from). When doing this, you can take all of the extra money that you have found and put it into your retirement saving. 34% of entrepreneurs lack retirement savings plan, so don't be caught in that statistic.⁴
Consider a company retirement plan. If you’re a sole proprietor, the tax savings from a company-sponsored plan could fund your contributions. If you have employees, you may want to look into a plan that can help you recruit and reward them while building loyalty for later on. Up to 100% of employer contributions to a company-sponsored retirement plan may be tax-deductible to the business.⁵
Supplement your Social Security income. Only 33% of the average U.S. retiree’s total retirement income comes from Social Security.⁶ The other 67% of retirement income needs to come from other sources.⁶ Some of this percentage can be taken up by selling your business, or from cutting back spending early on in your career so that you don't have to worry about what you did or didn't save for.
Plan for medical expenses.
Medicare only covers about 62% of basic healthcare expenses. The average 65-year-old retired couple will spend about $270,000 on healthcare during retirement.⁷ As another reinforcement of the idea, make sure you are cutting down on unnecessary spending whenever you can. Think of yourself in the future and try to imagine what it would be like if you did not have the right amount of money for your retirement.
As you plan for the future of your business, take the time to plan for your own future. At IronHawk Financial, we have been working with people just like you to plan for their retirement.
For educational purposes only and should not be viewed as financial, tax, or legal advice applicable to each individual; please consult a qualified professional regarding your individual circumstances.
¹ Sizing Up Small Business Owners: Product Ownership Trends. Report. Windsor: LIMRA, 2015
² FPA/CNBC Business Owner Succession Planning Survey, April 2015
³ Exits.com, "Only 25 Percent of Saleable Comapnies Have Successful Exits" ⁴ Manta Survey, 2017
⁵ Internal Revenue Service
⁶ Social Security Administration, Fast Facts and Figures about Social Security, 2017
⁷ Employee Benefit Research Institute, 2017