Retirement planning: 4 golden rules for small business owners (2024)

FAQs

What 4 factors must be considered when making individual retirement plans? ›

Most Common Retirement Plans for Small Business Owners

The most common retirement plans for the self-employed are IRA, SIMPLE IRA, SEP IRA, individual 401(k), and defined-benefit plans. These small business retirement plans permit contributions ranging from $6,000 to nearly $300,000, per year.

Retirement may seem like a distant dream, but it's never too early or too late to start planning. The “golden rule” suggests saving at least 15% of your pre-tax income, but with each individual's financial situation being unique, how can you be sure you're on the right track?

The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.

William P. Bengen is a retired financial adviser who first articulated the 4% withdrawal rate ("Four percent rule") as a rule of thumb for withdrawal rates from retirement savings; it is eponymously known as the "Bengen rule".

Though ideally, a small business owner can sell their business before retirement for a tidy profit, this is not always guaranteed nor is the sale amount. Some ways small business owners can ensure retirement savings are by establishing a SIMPLE IRA, a SEP IRA, a traditional or Roth IRA, and a Solo 401(k).

A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small business owners.

Three R's for a Fulfilling RetirementRediscover, Relearn, Relive. When we think of the word 'retirement', images of relaxed beachside living or perhaps a peaceful cottage home might come to mind.

To achieve early retirement, F.I.R.E. investors cut costs aggressively and save large percentages of their income. Their milestone for financial independence is a portfolio large enough to sustain their spending with inflation- adjusted withdrawals equal to 4% of the portfolio's initial value—the so-called 4% rule.

What are the 4 phases of retirement? ›

One way to plan for retirement is to consider the differ- ent phases or stages people's lives tend to go through after retirement. While Stein includes three such phases in his book, it is useful to add a Transition Phase at the beginning. The four phases of retirement, then, are Transition, Active, Passive, and Final.

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

4% rule calculation. Start by adding up all your investments, retirement accounts, and residual income. Calculate 4% of that total, and that's the budget for your first year of retirement. After each year, you adjust for inflation.

The sustainable withdrawal rate is the estimated percentage of savings you're able to withdraw each year throughout retirement without running out of money. As an estimate, aim to withdraw no more than 4% to 5% of your savings in the first year of retirement, then adjust that amount every year for inflation.

For many people, it's not just about the money. There are other key factors to consider in addition to finances, including lifestyle, family, health, and community involvement. It's important to assess how prepared you are today and know the steps you may need to take before you're ready to make a decision.