How to Prepare for Retirement as a Small Business Owner
Want an easy transition into retirement? Then make sure you plan and prepare with these useful tips
Define Your Retirement Goals so you Have a Focus
Whether you’re planning to escape to another country once you’ve retired, or simply to retreat to the back garden, it’s important to estimate how much you’ll need to live on. Maxwell points out that “you are limited to the amount you can fund a pension and obtain tax relief – this is a function of your earnings and specifically high earners are limited to £10,000 per annum. Also, there are instances where you may wish to cease pension funding if your pension fund reaches a high level. You can fund up to this limit into a number of private pensions without this impacting on your state pension.”
With the most you can get from the state pension being just over £8,000 a year, it’s crucial to save as much as you can in either a private pension or other investments. The pension calculator at Gov.uk is a useful tool for estimating what you can expect to get from a pension, whatever age you start paying into one, and what happens to the value of your pension if you delay for a number of years.
Whether you’re planning to escape to another country once you’ve retired, or simply to retreat to the back garden, it’s important to estimate how much you’ll need to live on. Maxwell points out that “you are limited to the amount you can fund a pension and obtain tax relief – this is a function of your earnings and specifically high earners are limited to £10,000 per annum. Also, there are instances where you may wish to cease pension funding if your pension fund reaches a high level. You can fund up to this limit into a number of private pensions without this impacting on your state pension.”
With the most you can get from the state pension being just over £8,000 a year, it’s crucial to save as much as you can in either a private pension or other investments. The pension calculator at Gov.uk is a useful tool for estimating what you can expect to get from a pension, whatever age you start paying into one, and what happens to the value of your pension if you delay for a number of years.
Develop a Plan to Sell Your Business or Hand It Over
Once you’ve determined how much you need to achieve for your retirement plans, you can work out whether you need to sell the business and for how much, or whether to hand it over to an heir or employee to continue. While it might be incredibly hard to imagine relinquishing control of your business, planning ahead will prevent any major headaches in the future. Start preparing for the sale of your business at least three to five years before you want to retire, and ensure the last two to three years of finances are in shape so your business looks attractive to buyers.
Once you’ve determined how much you need to achieve for your retirement plans, you can work out whether you need to sell the business and for how much, or whether to hand it over to an heir or employee to continue. While it might be incredibly hard to imagine relinquishing control of your business, planning ahead will prevent any major headaches in the future. Start preparing for the sale of your business at least three to five years before you want to retire, and ensure the last two to three years of finances are in shape so your business looks attractive to buyers.
Establish a Team of Trustworthy Professionals to Give You Advice
Maxwell warns that if you’re planning to sell your business to fund your retirement, this could be risky and can backfire, particularly if you aren’t aware of the tax implications of selling a business. “Consider the impact to you if you can’t sell the business, or worse-case scenario, if the business fails. You also need to consider the costs of sale, tax and how this impacts on your return,” says Maxwell.
Placing all of your funds and efforts into one business or investment is considered to be a high-risk strategy as your plan will depend entirely on the success of your business. Maxwell states: “The business could suffer a downturn and hence you may then need to completely rethink your future plans and income should this occur. Diversification of investments is one means of reducing risk and increasing your options.”
To guide you through this financial minefield, it’s worth establishing a team of trustworthy professionals, such as an accountant and financial planner, who can support and assist you so you make the right decisions early on and not leave things to the last minute. “Financial planners look at an overall plan and the impact of success or failure. Having the discussions about ‘what ifs’ will allow you to consider scenarios and subsequent strategies you may employ in these circumstances, so that you are prepared for these situations should they occur,” says Maxwell.
Maxwell warns that if you’re planning to sell your business to fund your retirement, this could be risky and can backfire, particularly if you aren’t aware of the tax implications of selling a business. “Consider the impact to you if you can’t sell the business, or worse-case scenario, if the business fails. You also need to consider the costs of sale, tax and how this impacts on your return,” says Maxwell.
Placing all of your funds and efforts into one business or investment is considered to be a high-risk strategy as your plan will depend entirely on the success of your business. Maxwell states: “The business could suffer a downturn and hence you may then need to completely rethink your future plans and income should this occur. Diversification of investments is one means of reducing risk and increasing your options.”
To guide you through this financial minefield, it’s worth establishing a team of trustworthy professionals, such as an accountant and financial planner, who can support and assist you so you make the right decisions early on and not leave things to the last minute. “Financial planners look at an overall plan and the impact of success or failure. Having the discussions about ‘what ifs’ will allow you to consider scenarios and subsequent strategies you may employ in these circumstances, so that you are prepared for these situations should they occur,” says Maxwell.
Start Making Plans Now
If you’ve chosen to take the freelance route because the freedom and flexibility of working for yourself outweighs the financial security of working for an employer, then you need to be in control of your own finances, including your retirement preparations, to avoid any money woes later in life when it’s time to slow down.
The best retirement plan for small business owners is specific to each person’s individual circumstances, so it’s important to research various options and consult with an expert before deciding. “At HFMC Wealth we advocate lifetime cash flow planning to help you understand how your money can be used to best meet your aims, and see whether you are able to take less risk, or need to take more risk, to achieve them,” says Maxwell. “We would then look at the strategies you could employ and pensions may be one strategy, but is not suitable for all.” Whatever route you take, one thing is for sure – there’s no time like the present, so start saving now!
Have you started planning for your retirement? If you’ve got some handy hints, share your insights below in the comments.
This story was written by the Houzz Industry Marketing team.
If you’ve chosen to take the freelance route because the freedom and flexibility of working for yourself outweighs the financial security of working for an employer, then you need to be in control of your own finances, including your retirement preparations, to avoid any money woes later in life when it’s time to slow down.
The best retirement plan for small business owners is specific to each person’s individual circumstances, so it’s important to research various options and consult with an expert before deciding. “At HFMC Wealth we advocate lifetime cash flow planning to help you understand how your money can be used to best meet your aims, and see whether you are able to take less risk, or need to take more risk, to achieve them,” says Maxwell. “We would then look at the strategies you could employ and pensions may be one strategy, but is not suitable for all.” Whatever route you take, one thing is for sure – there’s no time like the present, so start saving now!
Have you started planning for your retirement? If you’ve got some handy hints, share your insights below in the comments.
This story was written by the Houzz Industry Marketing team.
Financial experts suggest that saving around 15 per cent of your salary for your pension is ideal, however, in reality this can be a difficult task when day-to-day runnings of a business seem more relevant. Chartered Financial Planner, Caroline Maxwell, from HFMC Wealth also points out that pensions aren’t the only answer. “A pension could be an overall strategy, together with other savings such as cash, individual savings accounts (ISAs), unit trusts etc. It all depends on your individual needs. One business owner’s requirements will differ from another’s, so there is no ‘one size fits all’.’’
Read on for some handy advice for getting your finances in gear, and you’ll be on your way to a comfortable retirement.