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Business Owner Blunders: Top 5 Retirement Mistakes Made By Entrepreneurs

They’re often open seven days a week, working 24-hours a day, and always saying yes to the next big opportunity. These are America’s business owners, working 50-plus hours per week, far more than the national average of 33.8 hours per week reported by the Bureau of Labor Statistics. These entrepreneurs are working hard and investing daily in their business, but do they invest in their own retirement? Unfortunately, building a successful company doesn’t automatically guarantee a successful retirement. Entrepreneurs face a unique set of challenges when it comes to retirement planning, and there are many risks most people don’t see coming until it’s too late. The following five stories shed light on the biggest blunders and alert business owners to the two questions they need to have answered before they can retire in the manner that they deserve.

BLUNDER #1: Investing In the Business and Not In a Retirement Plan.

For more than 20 years Jim has run a successful shipping company that uses trucks to ship packages across the country. Like most business owners, he invested his profits back into the company, buying more trucks to keep his business growing instead of investing in a retirement plan. Now at age 51, Jim is realizing that sometime during the next 20 years, he’s going to want to retire, but drone technology is changing the future of the shipping industry. He wonders, will his business become obsolete, making it impossible for him to retire? Nearly 60 percent of U.S. small business owners plan to retire before age 65, yet according to a survey by Manta, more than a third of them have NO retirement savings in place. Like Jim, they put the majority of their earnings back into their business. Twenty years is enough time to grow and develop a successful business, but it’s also enough time for things in the world to change. Will your business be worth what you need it to be worth by the time it’s time for you to retire? It is possible to build wealth like a millionaire without investing the traditional way.

BLUNDER #2: Planning To Sell Your Company In Order To Fund Your Retirement Plan

Chaves and his wife own and operate a dog grooming and pet boarding business. They are open seven days a week, even on the holidays, because that’s what their customers expect. If you ask them about their retirement, they will tell you: “Our business is our retirement plan.” According to a 2015 survey released by the Financial Planning Association (FPA) and CNBC, 78 percent of small-business owners plan to sell their company to fund 60 to 100 percent of their retirement. This could mean disaster for the 28-million small business owners in America who want to sell during what may be a time of significant market saturation. Every month, more than a quarter of a million Americans turn 65, and experts predict a significant increase in the number of businesses going up for sale, somewhere in the neighborhood of 12 million businesses over the next 10 to 15 years.

BLUNDER #3: Not Knowing the Value of Your Business

For 35 years Richard nurtured his landscaping business and now it’s time for him to retire. He has become attached to his customers and his employers, but neither of his kids is interested in taking over the business. Not only does he have to find a buyer, he also has to let go of what he has spent a lifetime building up. According to the FPA/CNBC survey, the only thing harder than finding a buyer for your business is the emotional process of letting it go. More than half of all small business owners will sell either to their employees or family members, but for the other half, things can get sticky. It’s difficult to monetize a small business, and very few business owners are even aware of their company’s true value. Taking steps now to understand the true value of your business can give you knowledge, flexibility, and negotiating power at every stage of the planning process.

BLUNDER #4: Not Having an Exit Strategy

Joe had a successful orthodontist practice, a wife, three kids, and a mortgage valued at over $1 million. What he didn’t have was an exit plan. Last winter during the holidays, a skiing accident broke his wrist and crushed his hand, and now he can no longer run his practice. While the future is uncertain for all of us, one thing is certain: none of us can keep doing what we’re doing now forever. Someday, things will change, and for people like Joe, things might even change far sooner than expected. Having an exit strategy in place means being able to answer two important questions:
  1. How will you transfer your business? Will you sell it to your children or a family member for future wealth, or will you sell it in return for cash or future assets?
  2. How will you get your income during retirement?

BLUNDER #5: Not Having an Income Plan

Shirley sold her business in 2008 and invested the proceeds in the stock market. She thought she could live off her 4 percent withdrawals and that her retirement would be funded. Then the stock market tanked, she lost 40 percent of her business proceeds, and her 4-percent income was reduced to half of what it used to be. Having a successful payday at the end of a hardworking career is a surprisingly complex problem for the small-business owner. Not only do you have to do your succession planning for the entity that you have created, but you also have to turn that capital—your lifetime investments of time and money—into a paycheck that you can dependably live off. This is where annuities can come into play. Whether you want to plan for the future of your family or yourself, annuities give investors a way to both protect and grow their hard-earned money. They are also the only financial instrument that can reliably convert a sum of money into a pension-like income. Whether you need a longevity annuity to protect your money for later or an immediate annuity that can give you income now, these types of solutions can give you peace of mind because of the guarantees they provide. Don’t put off your planning until it’s too late. If you are a small business owner or entrepreneur, take the first step to investing in your retirement by contacting one of our retirement planning specialists today. We look forward to hearing about your income planning questions. Build Wealth Like A Millionaire Without Saving In A 401(K)

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