Many small-business people report they are financially and emotionally unprepared for retirement. Here are some tips to help you get ready for the future.
1. Tithe Yourself
A satisfying retirement at any age is a lot easier to obtain when you have adequate money to buy everything you want and need. For most small-business owners, reaching this goal requires making a dedicated effort to put money aside during their best earning years. A traditional target saving rate is 10 percent of your annual income.
If you can’t manage a full 10 percent, save whatever you can, even if it seems relatively insignificant. Why? Because your savings accelerate (when prudently invested) as a result of compounding, with early gains earning additional profits each year.
For example, 30-year treasuries (which carry close to zero risk) were recently yielding 3.69 percent. That means each dollar you save will be worth $1.44 a decade later, but $2.06 after 20 years, $2.97 after 30 years, and an extremely satisfying $4.26 after 40 years.
If you can invest to earn 10 percent returns each year (accepting more risk in return), that dollar grows even faster: $2.59, $6.73, $17.45, and a whopping $45.26 after 40 years of growth at (annually compounded) 10 percent.
Clearly, the sooner you save every dollar you can, the better positioned you’ll be financially for retirement.
2. Prepare a Retirement Budget
There are two reasons to prepare at least a “ballpark figure” retirement budget:
- It’s important to give yourself a realistic savings target.
- This target amount may be far higher than you initially imagine and preparing a budget can provide a motivational kick in the pants.
Base your retirement budget on your current lifestyle. Include how much you expect to pay for housing, groceries, insurance, transportation, medical care, entertainment, incidentals, and so forth. Basically, you can expect to pay about the same for housing (unless you move and/or downsize), groceries, entertainment, incidentals, and so forth (depending on your choices about lifestyle). Transportation expenses will depend on your travel choices, although your commute to work will probably disappear when you retire. Medical care may well be higher, since most medical expenses occur in the last decade or two of life.
3. Adjust as Necessary
At least once a year, compare your current savings and savings rate to your anticipated retirement needs. Then adjust your activity, as necessary, so you stay on track to hit your savings target. If it looks like you’re falling short, you can make up at least some of the difference by starting to spend a little less right now.
Your first steps toward thrift can be simple: Avoid buying those lattes every day, pack a lunch to take to the office, consolidate automobile trips, get a vehicle that consumes less gas, switch to a cheaper cell-phone plan, and so forth.
4. Find an Outside Interest
Getting your retirement funds under control is just half the battle. When you retire from your job or sell your small business, it’s vital to find new ways to spend your time. For starters, cultivate “carryover” interests that will keep you eager to get out of bed in the morning and busy throughout the day.
Take time now to explore possible hobbies, sports, volunteer activities, reading, or a “second career” doing something you’ve always wanted to do, such as carpentry, gardening, or music. Pursue whatever seems likely to hold your interest over the long run.
5. Train Your Replacement
As small-business owners reach retirement, many don’t want to let go of the reins they’ve held for so long. Even if they begin to lack the energy, stamina, drive, and desire that kept them at the helm of the company for so many years, they’re often reluctant to step down because, without them, the business may wither and die.
This can happen to you, too, unless you prepare well in advance. The easiest solution is to train your replacement, so that when you’re ready to retire, you can turn decision making and leadership over to a capable successor.
There’s an additional advantage to training your replacement: It frees up your time now to tackle bigger business challenges, such as expanding to additional locations, opening a new division, developing new products, or doing whatever else you haven’t yet had the time to do.
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