Ep. 235: The Business Owner’s Retirement Time Bomb No One Is Talking About

Small Business Owners and Retirement

“. . . never the twain shall meet.” The Ballad of East and West, Rudyard Kipling

If you’re a small business owner, you likely spend so much time growing your business that you haven’t planned to retire from it.

The Small Business Association (SBA) claims that if you own a small business and are over the age of 50, your retirement plans are far less certain than those who work for larger companies. Additionally, you’ll probably retire later or maybe not at all.

You’ve put your heart and soul into a business that in the end, hasn’t been working for you nearly as much as you’ve been working for it.

Ed Slott, this week’s Stay Paid guest, wants to help change that.

The ticking tax time bomb

Named “The Best Source for IRA Advice” by The Wall Street Journal and “America’s IRA Expert” by Mutual Funds magazine, Ed recently published The New Retirement Savings Time Bomb: How to Take Financial Control, Avoid Unnecessary Taxes, and Combat the Latest Threats to Your Retirement Savings. His premise is that the old advice about deferring taxes for as long as possible is no longer a viable option.*

Ed has studied retirement planning for decades, and he believes that there is a hidden threat to untaxed retirement savings in the US that is being overlooked. He refers to the threat as a ticking time bomb, and unfortunately, when it blows up—and it will—the dreams of an easy and secure retirement for millions of conscientious Americans will go with it.

He explains the doomsday scenario like this:

The US has a national debt exceeding $28 trillion, which is growing every day. The cost of the pandemic has only made the situation worse. And the day is coming when the government will need to pay this debt down.

The only option will be to raise taxes thus increasing the amount of your retirement accounts that will be tapped. Anyone, regardless of their political affiliation, who tells you otherwise is either lying or has their head in the sand. In retirement, it’s what you keep that counts.  

Move out of the blast zone

In his book, Ed details a five-step framework to help small business owners and others protect themselves from the blast of the retirement time bomb. During this episode, he explains the need for people to pay taxes now rather than defer them until retirement because, by then, the tax rate on your retirement savings will have likely increased significantly.

The man makes a lot of sense.

Rather than using traditional IRAs and 401(k) plans, which defer your taxes, Ed suggests working with an experienced financial planner to start moving your money from forever-taxed to never-taxed.

Diffuse the bomb

Ideally, you don’t want to contend with any retirement bombs going off. And, as you probably know, there’s a lot more to sound retirement planning than shuffling money.

Accion (the largest nonprofit lending network in America) also recommends that you:

  • Run the numbers: It’s not unusual for people to underestimate their future living expenses and overestimate the value of future static income.
  • Have an exit strategy: Decide what will happen to your business when you retire. Will you sell it, close it down, or pass it down to a family member?
  • Appraise the future value of your business: Determine what your business will be worth when you are ready to retire. If you’re a financial professional with your own practice, we have an episode about this topic just for you.
  • Consider your other assets and investments: Will your investments cover your costs in retirement? If not, adjust your investments accordingly to meet those needs. And be careful with your Social Security benefits—there are rules, especially for the small business owner.
  • Consider your retirement planning options: As a small business owner, you have more options than traditional employees.
  • Write a will: If you die before you retire and your wish is to pass your business on to your heirs, you’ll need an estate planning attorney to help since there will be tax implications for your survivors.

In all instances, you should hire a financial advisor with experience in financial planning for small business owners. You work hard, and you deserve to invest in yourself and your family as much as your business.

* This blog is not financial advice from ReminderMedia. It should not be used to make financial decisions. You should seek professional advice from someone who is authorized to provide investment advice.

Key Points

  • Business owners often cannot find a way out of their businesses to take care of themselves in retirement. They spend their lives working in their business rather than on their business.
  • Financial planners have long been taught that they should help their clients defer their taxes for as long as possible, but today’s economy demands a new approach.
  • Taxes on your retirement savings mean you will have much less in your retirement than your statements currently show. For some, the money they’ve diligently been saving their entire adult lives for retirement is at serious risk of not being sufficient.
  • The SECURE Act passed in December 2019 has made your 401(k) and IRA less valuable.

Action Item

Get Ed’s book and start making a financial plan for your future. Begin with the first step—find an expert financial advisor and can set an appointment. To find an advisor who trains with Ed as a member of Ed Slott’s Elite IRA Advisor GroupSM, visit www.irahelp.com/find-an-advisor.

Connect | Resources

Ed’s book: The New Retirement Savings Time Bomb: How to Take Financial Control, Avoid Unnecessary Taxes, and Combat the Latest Threats to Your Retirement Savings.  

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