Many entrepreneurs start their businesses because they genuinely like what they’re doing. But even if that’s the case, eventually, you’ll need to think about retirement. You can’t keep working forever; at some point, you’ll want to take things easy (and hopefully have enough money to live comfortably). With Social Security running out of money, and no higher-up employer to provide you with retirement benefits directly, it’s all on you to plan for your own retirement.

But how can you do that?

The Basics of Retirement Planning

Let’s start with some basic concepts for saving and building wealth for retirement. One of the most reliable approaches is to gradually build your wealth to an amount that can support you indefinitely for the future. The general rule of thumb is that, if you invest your money properly, you should be able to withdraw 4 percent of the principal per year and hypothetically never run out. For example, if you’re able to save $1,000,000, this would allow you to withdraw $40,000 a year. If you save $10,000,000, that would afford you $400,000 a year.

You can achieve this by investing money in various assets. Stocks are some of the most common choices; these represent fractional shares of ownership in various publicly traded companies, and they tend to grow as those companies achieve greater success. Well-established company stocks also pay dividends, which are regular distributions of profit granted to shareholders on a (typically) quarterly basis. You could also be more aggressive with a higher-risk, higher-reward strategy, like trading futures. With a good futures broker, you’ll be able to take advantage of financial leverage and possibly make profits far quicker than you could with long-term stock investing. More conservative assets, like bonds, also exist.

Three key concepts will help you ensure an adequate return for your retirement:

Compound interest

The power of compound interest is one of your best assets. Over time, you’ll earn interest on your investments — then earn interest on the interest, resulting in exponential growth. The sooner you start investing, the more exponential growth you’ll see over the years.

Diversified assets

Investing in just one type of asset will leave you vulnerable to the weaknesses of that asset. Instead, it’s better to diversify your approach, investing in both high-risk, high-reward assets and lower-risk, lower-reward assets, as well as assets from different industries. As you get closer to your retirement date, you’ll need to gradually shift to more conservative investments.

Tax-advantaged investment vehicles

Several programs allow you to invest your money in an “investment vehicle” with special rules and benefits that make it easier to save or grow your wealth. As a business owner, you’ll have your choice between many of these programs.

Investment Vehicles for Business Owners

As a small business owner, there are several retirement plans you could consider:

A simplified employee pension plan (SEP IRA)

With an SEP IRA, you’ll face no setup or maintenance fees, and only the employer (you) will make contributions. You can add up to 25 percent of eligible employee compensation per year, up to an annual maximum of $56,000 (currently). SEP IRAs are tax-deferred, so your contributions are pre-taxed, but you’ll pay taxes when you withdraw the money. If you withdraw prematurely, you may face an additional penalty tax.

A savings incentive match plan for employees (SIMPLE IRA)

A SIMPLE IRA is somewhat similar, but there are fees associated with setting up and maintaining this account. Employees opt to contribute to this account, and employers may match those contributions.

A self-employed 401(k) plan

In a traditional 401(k) plan, employees contribute pre-tax dollars to an account, and an employer may match those contributions. These are typically automatically withdrawn from paychecks. However, traditional 401(k) plans can be expensive, complex, and time-consuming to set up, so small business owners can use a self-employed 401(k) plan.

A Roth IRA

A Roth IRA is a separate retirement account you’ll create outside the context of your business. You’ll contribute dollars after taxes, but you’ll get to enjoy completely tax-free growth (so long as you don’t withdraw from the account prematurely). The annual contribution limit here is currently $6,000 for most contributors.

Finding an Exit Strategy

Keep in mind that you’ll also want to plan an exit strategy for your business. Are you hoping to sell the business as a last-minute cash-out to fund your retirement? Are you hoping to maintain your ownership and continue reaping some profits while someone else steps into a leadership role? Do you want to pass the business on to a family member?

There’s no right or wrong approach to business exit strategies, or even to your retirement planning — every individual will have different goals. What’s important is that you’re thinking ahead and planning for the future.

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