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When is the ideal time for a small business to plan for retirement?

October 15, 2012

Retirement: the often overlooked part of business

When you’re running your own business, it’s easy to get caught up in the sense of accomplishment that you feel and the day-to-day operations necessary to keep things running smoothly. Most owners don’t even think about how when they will retire or the steps they need to take to do so because they figure they will just sell their business when they’re ready and the proceeds will sustain them.

However, as a business owner, you are even more susceptible to not having enough money to retire with because your entire well-being lays on you and you alone. There is no company-provided 401k to prompt you to put money away each month. If you want to be able to comfortably retire and not work for the rest of your life, you need to start planning now rather than later.

A common mistake (and hot alternatives)

Many small business owners think the best course of action is to put all of their disposable income back into their business in order to make improvements that could boost revenue. While it is smart to continuously invest in your business, it isn’t wise to forgo allocating money towards your future.

Instead, if you are the owner of an early start-up, put away a small amount each month into a Roth IRA. Once your business begins to grow, you can move funds in a traditional IRA, which will provide tax benefits for your business. And after business really begins to take off, meet with an adviser and discuss setting up a SEP IRA (Simplified Employee Pension), which will allow you to contribute up to 25 percent of your net self-employed income.

The answer: start now

As a small business owner, the answer to the question of when to begin preparing for retirement is now. Don’t procrastinate or tell yourself that you need to reach a certain number of sales before you can start putting money away. Investing in your future is a venture that can’t wait and the outlook will only dim the more you put it off.

Your business may be your pride and joy, but don’t put all of your eggs in one basket and assume it will take care of everything 30-40 years from now. Market conditions could change and affect your revenue, so it’s better to put money away today, whether a small or large amount, and be certain it will be there in the future, rather than placing all bets on a future sale.

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.


  1. Hey Destiny, solid info. It’s surprising sometimes how many successful small biz owners don’t really know what’s on their menu as it relates to retirement. Here’s an option many find attractive, and creates exactly what you suggest.
    A Solo 401K is available to businesses where only the owner and maybe their spouse are employees. They can each contribute significantly more than double what traditional or Roth IRAs permit. Also, they can be used on the Roth ‘side’ or traditional side. That is, contributions can be either/or/and before and after tax. Once they turn 50, they can increase their annual Roth side contributions to as much as $22,500 — each. 
    I frequently have my own clients look long and hard at the possibility of executing this approach in their own businesses. I advise them to make use of the Roth approach exclusively. They find that the incredibly generous contribution limits and the ‘tax free’ nature of their ultimate retirement income are the factors that are most attractive. The fact that it’s completely ‘self-directed’ is especially appreciated, as it allows them to rid themselves of the straightjacket most traditional plans require when it comes to choosing investment vehicles.
    Thanks again for the super info, Destiny.

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