25 Small Business Retirement Plan Tips From the Pros

1. Use a Cash Balance Plan

Andrew Bellak, Founder & CEO, Stakeholders Capital

A cash balance plan is a defined-benefit pension plan for people who earn a lot and can save a lot. Most financial planners and CPAs are not familiar with it. The cash balance plan is maintained on an individual account basis, much like a defined-contribution plan, which means that changes in the value of the participant’s portfolio do not affect the yearly contribution amounts.

2. Consult a Financial Expert

Paul Davidson, Director of Human Resource Product Management, Paychex

Most small business owners aren’t always experts in financial planning, but you don’t have to be. A financial advisor – from any financial institution, including your local bank – can help you take the next step with a retirement plan. A plan provider can walk you through the various plans available and help you identify the most financially viable and ultimately beneficial retirement option based on your own situation and preference.

3. Use Cash Value Life Insurance

Greg Boots, Retirement Income Certified Professional, Executive Wealth Solutions, LLC

Cash value life insurance is a way to use the cash value of a life insurance policy as a tax-sheltered investment where the interest and earnings are not taxable. This allows for rapid cash accumulation while minimizing the insurance costs. By designing the policy to quickly accumulate cash, the capital within the policy has the opportunity to compound tax-free in the years prior to our retirement.

4. Have a Balance of Savings & Investments

Pamela Yellen, Author, Bank On Yourself

Know the difference between saving and investing, and act accordingly. To save means placing money you can’t afford to lose in a vehicle that’s safe and has guaranteed but slow growth. To invest means placing money in a vehicle that has a certain amount of risk. A gain may be high, but it’s not guaranteed – you might even lose your original investment. Having both is not only recommended – it’s necessary.

5. Start Crafting a Succession or Transition Plan

Ryan McGuire, Financial Advisor, Wipfli Hewins Investment Advisors

Take the initiative to start crafting a succession or transition plan. It doesn’t matter if you’re young or old, if you want the business to smoothly succeed after you leave, it’s important to have at least a rough outline of how you’d ideally like to see the business work through the eventual transition. Making plans as early as possible will help your business sooner rather than later.

6. Don’t Use Your Retirement Funds Early

Jim Slowik, Chief College Funding Strategist, My College Planning Team

Whether you need to pay for your kids’ college or you need funds to start a business, do not make the mistake of thinking you’re getting a break from the government when you use your retirement funds for these financial needs. Consider your other options to get funds to cover these needs, and try to leave your retirement funds intact.

7. Research Your Retirement Plan Options

Benjamin Sullivan, Client Service & Portfolio Manager, Palisades Hudson Financial Group

The best retirement plan for entrepreneurs is specific to each one’s individual circumstances, so it’s important to research various options before deciding on which one’s right for you. Some factors you should consider include the amount of income you expect to earn over the years, how much you want to contribute, and the amount of complexity involved in administering a given plan, which generally increases costs.

For more information, read our article on the best small business retirement plans.

8. Maintain a Diversity of Funds

Catherine Scrivano, President, CASCO Financial Group

The concept of not putting all of your eggs in one basket is especially applicable to business owners. If you devote your financial resources to the business alone, it will leave you fully exposed to a variety of risk. Your financial portfolio should be appropriate to your time horizon, risk tolerance, and goals, and provide enough diversity to reduce vulnerability to the success or failure of any part of the portfolio.

9. Follow the “Rule of 100” for Your Retirement Savings

Troy Bender, President & CEO, Asset Retention Insurance Services Inc.

The “rule of 100” recommends that you invest 55% of your assets at risk and save 45% where they are safe. The safe component is critical for success because if done properly, it will ensure you feel much more confident with the 55% at risk. Putting all your retirement funds at risk, no matter how high its potential for return, is highly discouraged.

10. Use Self-Employed 401k Plans

Jeffrey Hensel, Broker Associate, North Coast Financial

If you’re a self-employed individual or a business owner with no other employees, making contributions to a Self-Employed 401k plan is recommended. You will enjoy tax benefits such as tax-deductible contributions and tax-deferred growth – by contributing to this plan, you can save a huge amount of taxes each year. You also have a wide range of investment options such as mutual funds, stocks, bonds, ETFs, and FDIC-insured CDs

For more information, read our article on Solo 401(k)s and the best Solo 401(k) providers.

11. Strengthen Your Business’s Ability to Run Without You

Karen Wylie, M.Ed. & Ed.D., The Midlife Entrepreneur

It’s important to prioritize preserving the investment you’ve already made in creating your business. Make sure to take steps to strengthen your business’s ability to run and survive without you. Train a trusted successor long before you even think about retiring. Take some time off from your business but ensure that your primary business income remains stable and its future assured by placing the right people to manage it without you.

12. Consult an Expert to Plan Your Exit Strategy

Joel Keylor, CEO, Tresle Inc

If you are planning to sell your business when you retire, it’s best to strategize your exit plans as early as possible. Consult a professional to help you with ways to increase the value of your business and ensure that you can sell it for the right price at the right time. There are many ways for business owners to come up with a strategy for both the sale of the business itself and post-sale income positions.

13. Save at Least 10 to 15 Percent of Your Pre-Tax Income

Abby Rose Dalto, Bookkeeper and Staff Accountant, Westwood Tax & Consulting LLC

Most financial experts recommend putting away at least 10% to 15% of your pre-tax income for your retirement savings every year. However, the exact number you want to be saving really depends on your life expectancy and how you think you’ll be spending your retirement. It’s encouraged to save more than 15% now if you expect to be needing more money for your future expenses.

14. Start Investing As Early As Possible

Joshua Weiskopf, CEPA, Edelman Wealth Management Group Inc.

Start planning for your retirement as early as possible. Time is very often your most valuable asset and unfortunately, most small business owners get caught up with growing their business that they tend to forget this. The sooner you start, the more your retirement fund will grow because of the way compound interest works.

15. Starting a Side Hustle Business

Kristen Edens, Business Coach & Personal Finance Blogger, Boomer

Postpone access to your social security and retirement funds by starting a side hustle. This gives your retirement funds more time and opportunity to grow through compound interest. This allows you to continue working on your business even after retirement, but make sure that you still enjoy what you do and you’re physically able to.

16. Consider Contributing to a SIMPLE IRA

Victor Miltiades, Account Executive, MSL Group

A Savings Incentive Match Plan for Employees (SIMPLE IRA) allows you to contribute up to $13,000 of your net earnings from self-employment, plus either a 2% fixed contribution or a 3% matching contribution. By making contributions to SIMPLE IRA, you will be able to maximize your savings for retirement.

For more information, read our article on SIMPLE IRAs.

17. Learn to Trade for Profit

Pablo Solomon, Award-Winning Artist, PabloSolomon.com

Learn the art of buying, selling, and trading for profit. There is no better way to make extra money than to buy, sell, and trade a variety of things with which you are familiar. The money you make on sideline sales and trades can be a great addition to your savings and investment plans. The art of trading can serve as a hobby that provides an additional income source, however, it can be very risky.

18. Set Up an Automatic Withdrawal to Your Retirement Account

Allen Michael, Owner, The Stick Vacuums

As a small business owner, you can possibly forget to save for your savings because you don’t have an employer-sponsored retirement plan. To avoid this, set up an automatic withdrawal from your savings account (or payroll account, if you’re on your business’s payroll) to be invested directly to your retirement account. It’s like paying your retirement account just as you pay your regular bills each month.

19. Plan, Save and Invest, Rise and Repeat

James C. Hendrickson, Finance Expert, Saving Advice

Retirement planning is one part planning three parts action. First, you need to have a retirement objective. This is typically a dollar amount at retirement or state you’re trying to achieve, such as financial freedom. That is the first step – knowing where you’re going. The next is to take action. There are a number of tried and true approaches here. First, taking what Uncle Sam gives you and making the maximum possible contributions to a tax advantaged retirement account such as a 401(k) or a Roth-IRA. Second, keeping your expenses low and investing as much as you can will also help. Finally, the stock market can be moody so be sure to change your mix of investments to safer assets like bonds as you age.

20. Know What Your Fears are & Face Them

Most small business owners have common fears, like running out of financial resources later in life, getting seriously ill, or realizing that their monthly income at the time of retirement is not enough to meet their basic needs. It’s important to know what your fears are and face them before retirement. This allows you to plan accordingly and devise a feasible solution that will lead to a comfortable life during retirement.

21. Calculate How Much You Need to Retire

Calculate a ballpark figure for a lump sum amount you’ll need to retire. This allows you to make an estimate as to how much you’ll need to live a decent life if you’re not working. You should include your regular expenses and give a buffer unseen expenses like possible medical bills.

22. Invest in a Mix of Stocks and Bonds

You need to wisely select investments that will grow and compound your retirement funds. It’s best to choose a mix of stocks and bonds. Stocks historically offer greater long-term average returns, but with higher risk. Bonds have lower average long-term annualized growth rate, but it has lower price volatility.

23. Take Advantage of Being a Business Owner

As a small business owner, there could be a lot of opportunities open to you. There are financial institutions looking for business owners willing to invest in their 401ks or IRAs and will likely offer better benefits and rates. Do your research and talk to the different types of financial institutions in your area to check if they offer such opportunities.

24. Maintain an Emergency Fund

It’s best to maintain an emergency fund and keep it intact for emergency expenses that your business may encounter. By having an emergency fund, you’ll be confident that the unexpected and undesirable events won’t infringe on your retirement plans. Find ways to implement strategic cost management during the tough times in your business and use your emergency fund only when emergency.

25. Learn How to Value Your Business Properly

Many business owners do not really know the value of their business. Business owners tend to overestimate the value of their firm, aiming to earn around 6 to 7 times net profit. However, the actual final price for the sale of a viable business is likely around 2 to 3 times net profit, plus the asset value. Unique assets and/or intellectual property could command far higher selling prices.

Read our article on how to value your business to learn more.