If you are a woman business owner and don’t feel confident in your ability to retire comfortably, you are not alone.
A comprehensive survey of women business owners by Transamerica in 2016 revealed that nearly 46% of the respondents said they were concerned that they would not be able to retire comfortably.
Perhaps even more startling, 56% of female business owners surveyed indicated they planned to work beyond age 65 and were unsure if they would ever retire. Adding to this were worries about the state of social security, medical and long-term care needs, lack of a comprehensive retirement blueprint.
While saving for the day when you no longer want or are no longer able to work is challenging for almost everyone, it is incredibly difficult for women business owners. One of the reasons for this failure to plan is that, for most women entrepreneurs, their business delivers more than half of their household’s total income. The business is also a significant part of total net worth. Women owners often seek to increase that net worth by putting all available cash back into the business, instead of saving or investing.
Female business owners are also more susceptible to certain financial risks than men. These include things such as lower lifetime earnings, disability and illnesses, longevity, and caregiving. For these reasons, women who own businesses must start planning for income and retirement sooner than their male counterparts. Starting early will help ensure they don’t run out of money when they can no longer work. Wherever you may be in the life of your business, you can build a robust retirement savings plan by considering a few simple ideas.
Build a trusted financial advisor team: You must create your own “financial advisory” group that features specialists in various personal finance issues. This group of trusted money experts should include a tax expert, investment strategist, business exit planner, insurance professional, and income and retirement planner, among others. A team approach to personal finance will ensure you a more seamless blueprint for wealth accumulation and distribution.
Start planning as soon as you start your business: If you are in the early, cash-poor days of your business, it is tempting to postpone retirement and income planning. Don’t! Even if your cash flow is a trickle, make it a habit to put some of it into a retirement plan.
Don’t count on selling your business to retire: Typically, women business owners and entrepreneurs consider their companies to be the #1 component of their retirement. These business owners are proud of what they’ve built and are banking on selling that business to fund their retirement.
But counting on selling your business to create a stream of income is a proposition filled with risk. There is no guarantee that when you are ready to sell, you can find a buyer. The International Business Brokers Association (IBBA) says that as many as 90% of businesses listed never sell. Those that do manage to find a buyer often sell for much less than the owner anticipated.
If you get a “draw”- don’t put it in the business If you receive cash distributions from your business, it’s a good idea to put a substantial portion of that draw into traditional and alternative investments, instead of throwing it all back into your company. Investing in stocks, bonds, or safe money products will help you diversify away from your business’s concentrated risk.
Develop a caregiver plan and support network: Even women who own companies find themselves in primary caregiver roles. Caring for children, grandchildren, or elderly parents can create financial and emotional stress. Therefore, women business owners need to formulate a plan to manage caregiving responsibilities and create a support network. Spending too much time shouldering caregiver responsibilities can result in less business income, which will result in having less money for retirement.
Look for ways to cut tax liabilities: By partnering with your CPA, financial advisor, or other tax experts, you can find ways to put more money into your retirement plan by reducing taxes. For example, if you can pay your medical expenses upfront with a high deductible plan, you could take advantage of Health Savings Accounts. (HSAs) HSAs have many tax advantages that could put thousands of dollars back into your pocket.
Ask your advisor more about HSAs and other tax reduction strategies.
There are many ways that women business owners can create more prosperous and enjoyable retirements. It starts with the conscious decision to anticipate both upside and downside situations and create a comprehensive and achievable blueprint.