Whether it’s keeping the company afloat or finding new employees, small business owners have plenty on their plate. So although it’s disappointing, it isn’t very surprising that many small business owners are facing a retirement crisis due to the demands and challenges of entrepreneurship. According to The Washington Post, only 8% of entrepreneurs have saved more than $500,000 for retirement (which still isn’t even enough for most).
So how can small business owners prepare for retirement?
Set up automatic contributions
Setting up automatic contributions is one of the best ways for small business owners to prepare for retirement. With automatic contributions, a portion of your income can automatically go into a retirement investment account (like an IRA). As a busy entrepreneur, this will ensure that investing or saving for retirement doesn’t fall between the cracks.
Don’t rely on your business
Many of the small business owners surveyed mentioned that they were completely dependent on their small business for retirement. Although it’s certainly great to be able to create a nest egg with your business, the cold, hard truth is that this isn’t something you can completely depend upon for retirement. Even if your business remains successful until retirement (and unfortunately many don’t), there are a million factors that could affect its value and profitability, especially over such a long time-frame. Relying on your business for retirement is the equivalent of owning only one stock, or relying on one variable.
Adjust for an appropriate risk tolerance
As I’ve said before, business owners are naturally dreamers and risk-takers. To a certain extent this is a requirement for being an entrepreneur. Many business owners, however, mistakenly reflect this attitude in their investment portfolios. Remember, owning a business has more inherent risk than a steady long-term career. Instead of following your appetite for risk, your portfolio should offset the risks of your business. Although each and every investor has a different financial situation, most entrepreneurs should lean towards less risky investments (like fixed-income) to offset their business risk.
Learn more about how small business owners can prepare for retirement
As someone who founded LexION Capital from the ground up with zero outside funding, I understand the unique challenges small business owners face. At LexION Capital, we can create a customized investment portfolio that meets your retirement needs and takes into account the financial challenges of your business. If you’d like to learn more, don’t hesitate to contact us today.