Entrepreneurs are often workaholics. I've seen it time and time again. It's almost impossible to successfully start and run your own business unless you have the energy and dedication to put in long hours day after day after day. For that reason, the thought of retirement can be anathema to many entrepreneurs.
That being said, everyone wants to have options. You might think you'll work until you're 80 now, but those priorities might change. The last thing you want is to get to the point where you're considering retirement only to realize your finances won't allow it. Here are a few tips on how to plan ahead so you can retire from your business when you want to and live the lifestyle you desire.
Choose The Timing That's Right For You
There are stories out there of entrepreneurs who built a business, sold it for millions, and retired at 30. If that's what you want, then go for it. Don't feel pressured to retire at 65 or whatever standard age you might hear. If you have the money to be able to retire young, then do it, and if you want to work until you're physically unable to, then that's great as well.
Just remember, different timeframes create different concerns from traditional retirement planning. If you want to retire young, realize there's a lot of time where emergencies, market crashes, or simply changing priorities can throw a wrench in your plans. If you plan to work long into your later years, have a contingency plan in place if you end up being forced to stop working earlier than you intended.
Get The Plan That's Right For You
There are several types of retirement plans from which an entrepreneur can choose. Simple IRAs, SEP IRAs, Solo 401(k)s, and traditional Roth IRAs all offer different advantages. Roth IRAs are great for tax purposes, but have a limit to the amount you can put in, whereas the others have larger caps. Solo 401(k)s let you access that money as a loan if your business needs liquidity. The full list of differences is far too long to list here.
The best way to choose is to consult with a financial planning professional. They'll have the expertise to explain all the costs and benefits of each plan and match you with the one that best fits your needs.
Plan (Way) Ahead
Most entrepreneurs don't start really planning for retirement until five to ten years from when they plan to hang it up. It's definitely better to start later than never at all, but it's much easier to plan for retirement if you start when you're young. Thanks to compounding returns, money saved when you're 30 can end up being worth double or triple the same amount set aside in your 60s.
Knowing how and when you want to retire from an early age also helps in planning how to use your funds. If you want to live off your business' earnings, then it might make sense to invest back into your company rather than save up yourself. That also means you'll want to start grooming your successor to manage the company for you well ahead of time.
Know The Worst Case Scenarios
This kind of pessimistic thinking may not come naturally to many entrepreneurs, but it's important to consider the possibilities when planning for retirement. What happens if your business goes under? What if health concerns force you to stop working before you planned? What do I do if no one's willing to meet my valuation when I want to sell?
Contingency plans aren't supposed to set you up to fail. They're there so you can pursue the best-case scenario without having to worry. Knowing you can survive your business struggling will give you the confidence to take risks and pursue aggressive growth.
Tailor Your Business To Your Exit Plan
Different strategies for retirement will necessarily lead to different priorities for your business. If you want to sell your company, then emphasizing growth and being a leader in your market segment will make your company more attractive to potential buyers. If you want to retain an ownership stake and live off the earnings, then it's crucial to build your business into a reliable cash flow machine.
Obviously there will be other concerns, but don't be afraid to consider your own exit plan when making strategic decisions. It's your business, so make it work for your needs.