The past few posts have focused on money. After all, people go into business for themselves believing this is a way to better provide for their families and to serve their fellow man. As we saw yesterday, there is nothing wrong or evil about making money. However, one of the issues that small business owners often neglect is planning for their retirement.
Starting a business is hard. Often, during a start-up the entrepreneur make not pay himself or herself any salary. Even if the business begins to do well, some small business owners do not pay themselves appropriately. Even more fail to do anything towards retirement.
I was recently speaking with a small business owner who had retired a few months ago. This business had been in his family for several generations, and I’m sure he had done very well for himself. Something came up about retirement, and he mentioned that the majority of his retirement savings was in his property. The sale of the building would fund his future retirement. Although I’m confident that he is in very good shape financially (the building is not even for sale), this is a dangerous philosophy held by some small business owners who have not done so well financially. Depending on your location, business property can take a long time to sell, and if you’re planning to fund your retirement on its sale, you may have problems.
Dave Ramsey recommends putting 15 percent of your income into retirement accounts after getting out of debt. Putting as much of that money as allowed into ROTH retirement accounts invested in good mutual funds can allow you to retire with dignity. Of course, once you maximize your ROTH accounts you can put the remainder of your retirement money in other funds.
Some believe that 15 percent is too much. It’s really not if a person is willing to live on less than they make. If you tithe 10 percent to your local church and put 15 percent into your retirement, you still have 75 percent of your income on which to live. If you have no debt most people can live very comfortably on 75 percent of their income.
But, even if you only put 10 percent of your income towards retirement you can have a very nice nest egg for retirement. The important thing is that you are putting something every pay period into your retirement. It’s more important to start doing something than to do nothing at all.
At the outset of your business plan you should include retirement planning. You don’t want to be 80 years old and still have to run your business because you have no money for retirement, and you don’t want to have to depend on Social Security to fund your retirement. Social Security will not allow you the standard of living you enjoyed during your working life if that is your only source of retirement. If you do not have a retirement account you need to start today.