It might seem impossible right now, but sooner or later, you will retire. And so will your employees. The question is, will you, or they, be ready?
People make assumptions about retirement that can shortchange them when it’s time to slow down. Some think they can rely on Social Security. Others think they’ll be able to live on the equity from the family home after they sell it and move into a condo. Or they assume they can retire on proceeds from the sale of their business.
Such assumptions leave a lot to chance. A retirement plan can help you take control of your own destiny, says Michael Bein, a consultant for Harris Investor Services Inc. in Chicago.
A choice of plans
Bein, who works with all types of businesses in the Upper Midwest to set up retirement plans, observes that people are living a lot longer today. “When you retire, you have to plan to live through the age of 100, which means you’ve got to have a substantial cash balance built up to support yourself,” he says.
Then there are taxes. In the typical individual- or family-owned small business, profits all pass through to the owner and get declared on the personal income tax return. But a retirement plan is a kind of time machine: You take money you make now and, instead of paying income taxes on it now, transport it to the future. “These plans allow a business owner potentially to move money from the corporate ledger to the personal ledger in a tax-efficient way,” Bein says.
Today there are three basic approaches most small businesses can take: A Simplified Employee Pension plan, or SEP, a Savings Incentive Match Plan for Employees, or SIMPLE, or a 401(k) plan. Each has benefits and drawbacks, depending on your personal and business situation, so before you plunge into one or the other, you should speak directly with a professional financial advisor.
