Building Business with a Retirement Plan
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CIBC estimates that approximately $1.2 trillion in Canadian business assets alone will change hands by 2010 as more baby boomers anticipate retirement. Imagine what that means for American businesses! Business owners not only have to worry about their own retirement planning, but will also need an exit strategy and a long-term plan for their employees. The same study found that 60% of small business owners haven’t even begun to discuss their retirement plans yet. Don’t leave yourself struggling to pay bills or your employees hanging high and dry. Develop a responsible plan for building business after you’ve retired and explore your options today.
Social security and pension plans should be the baseboard for your retirement planning, but you’ll have to think more creatively to continue making money once you’ve left your business. Many owners, while simultaneously building business, choose real estate investment properties or further their stock and mutual fund investments. In addition to expanding your business, you should be retirement planning and considering an exit or succession strategy. Recruiting the services of a financial planner can be an invaluable asset.
For many retirees, 31% of their business retirement plan will come from the sale of their business. An additional 28% will come from a registered government savings plan, such as an IRA or 401k, and 25% from stock market investments. The smallest income will be the 16% from social security or pension funds.
One in five small businesses now offer an employee retirement plan. While building business and contemplating your own retirement, you may wonder: Should your business be one of them? Many owners fear an employee retirement plan will lead to large losses amid a shifting economic landscape. However, when retirement planning, you may want to consider a Simplified Employer Pension IRA. The SEP-IRA offers much higher contribution limits (up to 15% of an employee’s annual income), gives employers a choice on how much money will be contributed to the general employee distribution annually (depending on how well the company does), and an easy administration process. A SEP-IRA is very similar to a 401k plan, but has lower contribution limits, easier administration and is generally a less expensive option for smaller businesses. Three potential drawbacks to consider are that: employees can’t contribute directly (you’re making the contribution in the employee’s name), qualifying employees include anyone 21 and older with an annual income of $400 or more (part-timers included), and there is no waiting period for withdrawal (whereas vesting may encourage employee retention).
Retirement planning doesn’t have to be your worst nightmare. Investigating an employee retirement plan while building business and investing in your own supplemental retirement plan can be a liberating experience. Spending a couple hours at Fidelity Financial today, could give you and your employees years of financial freedom in the future.
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