For the owner of a small business, it’s easy just to concentrate on the day-to-day operations of the organization, especially if it’s doing well or in the throes of expansion. Responsibilities include looking after employees, creating detailed business plans, and drawing up budgets. It can be hard to look into the future when everything is so busy, but it should be an important consideration for any business owner to contemplate and plan for retirement.
Business owners need to realize that it’s likely that the bulk of the funds for retirement will land on their shoulders, so some long-term thinking and preparation should enable them to benefit from the fruits of their labor when they decide to retire.
Choosing an appropriate retirement plan is an important step, especially as owners have complete responsibility for their own income as well as that of their employees. Investing for the future will help build a good-sized nest egg so that retirement can be comfortable. It makes a lot of sense to set up a plan as soon as possible, and depending on the size of the business it is possible to set up a plan for employees as well.
Here is a brief guide to some options:
The Simplified Employee Pension Plan is for small-business owners and the self-employed. Contributions are tax-deductible, set as a business expense, and made only by the employer.
The Savings Incentive Match Plan for Employees is for businesses that have 100 or fewer employees. It’s funded by employer contributions that are tax-deductible and by pretax employee contributions.
This is a tax-deferred plan for retirement for people who are self-employed, and it offers more generous contribution limits than the two previous plans. However, it’s only appropriate for businesses that have no “common law” employees. This means anyone who works for the business who doesn’t have an interest in the ownership.
Where to invest
Investments can be volatile in that they can go up in value as well as down. Part of the decision about where to invest retirement funds will rest with the investor. Entrepreneurs are usually risk takers but need to decide what their risk appetite is when investing for the future. Sectors such as biotechnology, for example, have the potential to provide high returns but are risky because a large percentage of new drugs fail, affecting stock prices.
Treasury Bonds are a low risk investment, though returns will not be spectacularly high. For higher potential returns, investing in a Fortune 100 company is not usually too risky, though share prices can fluctuate.
The world of investment finance is complex, and those new to it should take advice on their best options from seasoned financial professionals, such as the Gallagher Financial Group. Business owners need different types of advice than employees, so a relationship with a professional adviser is important to ensure that the most suitable investment plan for retirement is achieved.
Photo credit: Chase Elliott Clark / Flickr