7 Tips for Preparing for an Early Retirement Now

Alongside home ownership, early retirement is a long-held American dream. But in recent years, planning for retirement itself, let alone an early one, isn’t getting any easier. In 1991, half of all American workers planned to retire before they reached the age of 65. Today, that number has plunged to just 23 percent.

And that’s not the only alarming statistic. A study conducted by Boston College’s Center for Retirement Research reported that American workers are $6.6 trillion short of what they need to retire comfortably. Meanwhile, over the next five years, the health and medical insurance industry’s revenue is forecast to increase at an average annualized rate of 5 percent to more than $865.8 billion – putting even more pressure on most Baby Boomers’ underfunded retirement nest eggs. (Source: Financial-Planning.com)

But if you are 10-20 years away from your desired retirement age, there are still some things you can do now as a small business owner to make it easier for you to retire on your terms.

1) Cash Flow Positive? Invest!

If you are new to business ownership, start putting money aside as soon as you have sufficient cash flow to do so (meaning you’re generating enough income to cover your expenses and debts). Start as soon as you can and invest in tax-efficient retirement plans such as an SEP IRA, a SIMPLE-IRA, a traditional 401(k), a Solo 401(k), a traditional IRA or a Roth IRA.

2) Have a Solid Financial Plan and Revisit it Often

Planning on retiring on the earnings from the sale of your business? Is that going to be enough? What happens if market conditions change, or unexpected liabilities or risks occur that threaten the worth of your business?

Just as you need a living, breathing business plan to steer your business on its course, it’s just as important to have a financial retirement plan that tells you how much you need to set aside for your retirement, independent of your business assets.

Proper planning should take into account tax planning, investments, employee costs (health insurance, wages, benefits), profit-sharing plans, and succession goals.

Spend some time with an independent financial advisor now and throughout your business career to constantly and holistically assess and manage business risks and opportunities.

3) Build Your Business as an Asset

Seventy percent of small businesses are run by sole proprietors, but your business is about more than just you. Look for ways to grow it as a sustainable and attractive asset so that it’s profitable even when you are not there – and retains its appeal to potential buyers.

4) Get the Right Health Care Plan – Today!

Don’t wait to see what Medicare will and won’t cover by the time you retire, or you run the risk of spending all your retirement savings on medical bills. Plan now for long-term health care – talk to a trusted insurance broker (ask around for referrals) or check out Healthcare.gov to understand your options.

5) Plan Your Exit Strategy Now

How can you retire without destroying the business you spent a lifetime building? Your business may be your largest asset, and deciding what happens to it can impact your retirement income, your family’s wealth, and the life of the company after your departure. Even if you are only just starting out, you should address these questions now because the future is uncertain. Here are four ways to sell your company when you retire (or when you die). SBA guest blogger Barbara Weltman offers advice on optimizing your return and protecting your lifelong investment in her blog: Four Ways to Exit your Business Gracefully.

6) Keep on Working?

Can’t imagine retiring full time? Know you’re going to need some additional income and benefits after you retire? There are many post-retirement career options to consider, but as more retirees look for part-time or freelance work, it’s going to become an increasingly crowded space. So plan ahead now.

Starting another business post retirement might also be an attractive option. The following articles offer tips that can help you formulate your business idea and put it into action – in the context of your retirement planning and needs.

• Senior Entrepreneurship – How to Tap a Lifetime of Experience into Business Success
• Starting a Business Later in Life? Financing Options for Retirees and Seniors

Related Articles

• How Much is My Business Worth?
• Finding and Managing the Right Retirement Plan for Your Small Business
• 4 Tips for Giving Your Business Retirement Plan a Check-Up; Before the IRS Does!

About the Author

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley