Retirement Planning for Small Business Owners

As a registered financial representative, you will be working with clients that are employed in a variety of industries, including the 28.4 million self-employed small business owners. Advising this type of client, specifically when it comes to retirement planning, poses unique needs that you have to address as their financial advisor. Often times, small business owners invest their life savings and time into their business, forgetting to plan for retirement. Many employ a financial advisor to manage their assets, relying on their advice and expertise.

Actively Build Assets Outside of Their Business

Diversifying your small business owners' portfolios will ensure that they have assets built up to use during their retirement. According to TD Bank, 47% of small business owners have no retirement plan in place. Commonly, small business owners look at their assets, which are all invested in their business, as being their sole monetary source for retirement. Once they reach the designated retirement age, they plan on selling their business and using that money to live off of. 25% of small business owners plan to close their doors no matter what the financial implications are. Encouraging your clients to actively build assets outside of their business will help them plan a more solidified retirement future.

Plan an Exit Strategy

Often times, small business owners are fully invested in their brand financially and emotionally. With roughly 1 in 2 retirees working throughout their 60s, 70s, and beyond, many self-employed clients will have the same mindset. It is important that you spark a conversation with your client from the beginning, encouraging them to think about an exit strategy for their business down the line. It is crucial to pose questions, like:

  • Do you have a successor to carry out the business operations once you go into retirement?
  • Are you planning to close or sell the business?
  • What financial goals do you need to reach in order to feel comfortable removing yourself from the day-to-day operations during retirement?

It is your job as the financial advisor to use these answers to offer the tools and resources your clients need in order to make informed, educated, and successful retirement planning decisions.

Make Unknown Costs, Known

It is important to take a holistic view when constructing your clients' retirement plans, making sure to take into account expenses that may not be known to them, such as taxes and personal expenditures. It is very common for small business owners to write off personal expenses on their business, including:

  • Cell Phone Bills
  • Car Payments and Insurance
  • Computers and Other Technology
  • Traveling Expenses
  • Health Insurance

Adjusting your clients' savings plans to account for these out of pocket costs during retirement, will ensure that there will be no hidden expenses during this time. In addition to factoring in personal costs to retirement savings plans, discussing the impact of taxes is also important. Depending on the type of business sale your client decides to go with, there can be varying levels of taxes that will be deducted from their end profit. This can have a large impact on their retirement funds and it is something that is imperative to discuss and plan for.

SII Investments is an independent broker/dealer that is rooted in service, innovation, and integrity. We are dedicated to providing our affiliated financial representatives with the answers they need to run a successful financial services firm. Transition your business to SII today by contacting us to grow your business today.