How Baby Boomers and Entrepreneurs Put Their Retirements at Risk

Is starting a business part of your retirement dream? Many boomers start a passion-fueled business during retirement, thinking they’ll earn big bucks, while finally doing what they’ve always dreamed of.

The number of boomers launching businesses is on the rise, with boomers now twice as likely to plan on starting a business as millennials, as reported by the Kaufman Foundation. The one thing they both have in common: putting retirement savings on a back burner.

US News & World Report’s recent article, “7 Reasons Entrepreneurs Don't Save for Retirement,” examines some of the biggest mistakes entrepreneurs make when it comes to retirement planning.

1. No plan. Some business owners say they’re just too busy to plan, whether it's business planning, estate planning or financial planning. About 34% of small businesses owners don't have a retirement savings plan, according to a 2017 survey of 1,960 small business owners by Manta, an online resource for small businesses owners. However, setting up a retirement account offers benefits like tax breaks and the ability to earn compound interest.
2. Putting everything back into the business. Entrepreneurs won’t put their money into retirement because they worry they’ll lose quick access if they need it for the business. However, diversifying your assets can help you to better handle emergencies and save for the future.
3. Believing that the sale of the business is the retirement plan. Most entrepreneurs overestimate the value of their business and their ability to sell it, when they’re ready to retire. It may not be that easy. Plan with your head and not your heart—take the emotion out of it, and plan conservatively.
4. Poor business structure. Some entrepreneurs begin as sole proprietors and remain sole proprietors. However, not structuring your company as an LLC, can put your personal assets at risk. That can put your retirement at risk.
5. Not diversifying. If most of your net worth is in the business, you should seek out low risk investments for money outside the business and be sure to contribute to your own retirement plan, besides investing in the business.
6. Failing to save. Business owners can save up to 25% of their compensation or $55,000, whichever is less, in a SEP-IRA in 2018.
7. Funding a new business with retirement savings. Starting a business is a risky venture. Using retirement funds later in life, could lead to a financial disaster. If the business does not succeed, you are not likely to be able to make up a lifetime of savings, investment growth or interest income during retirement.

Business owners and entrepreneurs sometimes may also fail to plan for future problems such as who will run my business if I become incapacitated, or how can a trusted agent access my retirement accounts for my benefit when I am incapacitated.  Coordinating your business and retirement plans with your estate plan can avoid costly problems such as a conservatorship that my erode your retirement plans and savings that have been set aside for your later years.  Talk to an estate planning attorney today at the Soto Law firm to learn more about how a Financial Power of Attorney and ownership of your business through your trust can help you avoid these complications.

Reference: US News & World Report (May 11, 2018) “7 Reasons Entrepreneurs Don't Save for Retirement”

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