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Value Creation Blog

Help! Will I Ever Retire? A Roadmap For Micro-Businesses

Posted by Josh Patrick

micro business resized 600The vast majority of businesses in the US are micro-businesses.  A micro-business is a business that has five employees or less.

I own a micro-business.  I can say with complete authority that this business is much different than my food service business where I had 90 employees.  The differences are not only in how I run the business, but how I’ll likely leave the business.

The challenges in retiring from a micro-business are much different than those who own larger businesses.  If the owner is able to sell their business it’s highly unlikely the proceeds from the business sale will be enough to fund the owners retirement by itself.

If you own a micro-business it’s very important that you look at and understand your options with qualified retirement plans Just like those who are high earning executives working for other companies, how much you save for retirement while working will often set the tone for what type of retirement you will have.

The amount of money that you can put in a qualified retirement plan whether it be a SIMPLE plan, a 401(k) plan, profit sharing plan, or defined benefit is almost completely up to how much you can afford to contribute and how much you want to save.  The more you save the more options you will have as you get closer to retirement.

In a micro-business prefunding your retirement using qualified plans is important.  Although you are working for yourself you should think as if you’re working for someone else.  This is especially true when it comes to saving for retirement.

Many micro-business owners make a significant amount of money while working.  Carving off a large part of that income for retirement savings will allow you to have a large nest egg when it comes time to stop working.  My belief is that it’s more important to concentrate on how much money you can save than to concentrate on the returns you get from your investments.

In the case of retirement planning for micro-business owners it’s how much money that is saved that will be a determining factor in how much money you have at retirement.  If you save the maximum amount you can you will have a nice amount of money at retirement, often in excess of a couple of million dollars: This would be true if you have a defined benefit plan that has used the maximum funding formula.

The truth about a qualified retirement plan is that the real value for you as a business owner will be how much you save.  You can save an even amount over your career or wait and then have to fund at a much higher level as you get closer to retirement.  The choice is yours, but if you want to retire and not change your living standard you will have to have significant savings before you get there.

If you own a micro-business you will want to know where you stand on the road to financial independence.  This is more important for you than for business owners who have larger businesses.  We’ve developed a tool called the four boxes of financial independence.  Download this special report so you can learn if you’re on the road to financial independence.  To get this report, click on the button below.

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Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: retirement planning, wealth management, exit planning, business exit planning, selling

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