It’s a major goal for nearly every business owner. You’ve spend much of your adult life building and growing your business. As you get older, you may dream of selling your business and then using the proceeds to fund your retirement.
Selling the business is one half of the battle. Many business owners find it challenging to find the right buyer for their business. Some potential buyers may not have the funding needed to meet your price. Others may not be a good fit for your employees or your customers. Often, the sales process may need to start years in advance in order to find the right buyer, negotiate a mutually beneficial deal, and manage the transition.
Even after you complete the sale of your business, though, there are still a few hurdles to overcome. One of the biggest is determining how to use your assets to fund a long retirement. It’s possible that your retirement could last 30 years or more. The proceeds from the sale, along with your other retirement assets, will have to be managed carefully to last for that period of time.
The good news is that you have options available. In a recent episode of financial show Right on the Money, Milestone Coach Advisory President Caine Nakata discussed retirement funding options with host Steve Savant. Caine talked about how there are a variety of strategies business owners can use to manage their assets and sale proceeds to fund a long, comfortable retirement.
Below are a few such strategies to consider. Some are traditional strategies commonly used by retirees. Others may be a bit more unconventional. A financial professional can help you determine which strategies are right for you.
Traditional Funding Options
While business owners may face unique needs and challenges, they can also take advantage of many of the funding tools used by non-owner workers. If you don’t currently use any of these tools to save for retirement, now may be the time to consider doing so.
401(k) Plan. The 401(k) is one if the most commonly used retirement savings vehicle. You may think they’re only for large corporations, but that’s not necessarily true. A 401(k) plan could be an effective tool for your retirement and your business. You can use it to save for retirement on a tax-deferred basis. It could also be an attractive benefit that could help you recruit talented employees. One thing to consider is that with a 401(k), you will likely be required to make contributions on behalf of all employees who are eligible for the plan.
SEP IRA. The SEP IRA is popular among business owners because it allows you to make larger contributions than would be allowed under a 401(k) plan or other qualified accounts. Growth is tax-deferred and you can usually choose from a broad range of investment options. Like a 401(k), you may be required to make contributions on behalf of your eligible employees in a SEP IRA.
Defined benefit plans. The defined benefit plan, also known as a pension, is quickly becoming a rarely-used retirement savings tool. Many large companies are cutting their pensions in favor of 401(k) plans. However, a defined benefit plan can be a good choice for business owners. You may be able to contribute large amounts to the plan and you could have more flexibility with regard to employee contributions.
Business owners have a few options available that may not be as commonly used by non-business owner retirees. Some of these strategies could be effective uses for proceeds from the sale of your business.
Financing arrangements. It may be possible to tie your retirement funding into the sale of your business. For instance, you could utilize a third-party funding partner to finance the sale of your business and also generate an ongoing stream of income. You could negotiate profit-sharing, bonus payouts, or consulting compensation in the sale.
Insurance. Living expenses aren’t the only financial challenge you’ll need to fund in retirement. You could face disability or long-term care costs. If you or your spouse pass away, you could face new financial issues. Insurance can often be used to address all of these concerns. This is especially true of cash value life insurance that could be used to generate tax-efficient income.
Annuities. If you walk away from your business sale with a large lump sum of money, an annuity could be an effective tool. Annuities can be used to convert a lump sum into a stream of income that is guaranteed* for life. Some annuities come with growth opportunities, while others don’t have liquidity or growth potential but may offer higher income amounts.
Ready to discuss your retirement funding strategy? Let’s talk about it. Contact us at Milestone Coach Advisory. We can help you evaluate your needs and develop a plan. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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