If you’re a successful entrepreneur in the Grapevine, TX area considering retirement in the next few years, one of the most important aspects of your planning process should be developing a retirement income plan. This type of plan can assist in driving present and future financial decisions as you contemplate a comfortable, secure retirement.
A comfortable retirement means you live the life you want during your golden years. A secure retirement means you have plenty of income and assets late in life when you need them the most.
Engaging with a Texas CERTIFIED FINANCIAL PLANNER™ who specializes in retirement income planning can be invaluable for successful entrepreneurs. In this article, we’ll explore the three components that should be considered in your retirement income plan:
- What is a Retirement Income Plan for Entrepreneurs?
- How to Identify Your Retirement Income
- How to Identify Your Retirement Expenses
- How to Match Your Retirement Income to Your Retirement Expenses
If you’re considering retirement in the near future, read our popular Quick Guide: Retirement Planning in Grapevine, TX, for High-Net-Worth Individuals.
What is a Retirement Income Plan for Entrepreneurs?
A retirement income plan is a financial strategy that is designed to generate a steady and reliable income after you stop working. It typically involves a mix of savings, investments, pensions, Social Security benefits, and the potential for other sources of income.
As an entrepreneur, it’s important to have a retirement income plan in place for the following reasons:
- Compared to employees who may have a steady income and employer-sponsored retirement plans, your income may be less predictable, depending on the profitability of your business. There is also a risk that the business may be difficult to sell, or it might sell for a lower price than anticipated, which can impact your retirement assets and income.
- A major risk is the sale of a business based on a down payment and an earn-out. What if the buyer needs help managing the business, impacting their ability to make future payments?
- Some entrepreneurs don’t have substantial pension assets to fall back on. While traditional employees often have access to retirement benefits like 401(k) plans or pensions provided by their employers, you are on your own when you accumulate assets for retirement.
- With advancements in healthcare, people are living longer than ever before. This increases the risk of outliving your savings, making a well-planned, diversified retirement income plan even more critical. Retirement could last 30 or more years, particularly when you count both spouses’ lifespans.
- Healthcare can be one of the biggest expenses in retirement, and it’s often unpredictable. Having a retirement income plan can help you prepare for unexpected medical costs.
- As an entrepreneur, you may be used to a certain lifestyle during your working years. A retirement income plan can be designed to maintain this lifestyle after you retire.
- The cost of living will likely increase over time due to inflation, tax policies, and other non-controllables. A retirement income plan can help ensure your income keeps pace with rising costs. This is critical for maintaining your standard of living.
- Given your hard work building a successful business, you will likely want to leave your family a legacy or inheritance. A proper retirement plan can ensure specific assets are passed to future generations.
Once established, this retirement plan should not be static. We meet with our clients regularly to discuss any changes in their financial situations and make any necessary updates to their plans. Simply put, your retirement plan should be treated as a dynamic process, not something that gathers dust in a file cabinet.
Waterworth Insights: Planning for retirement isn’t just a task reserved solely for those about to retire. Formulating a comprehensive retirement income strategy is a key part of your overall wealth management strategy, regardless of how many years you are from retirement or even if you have already retired.
Understanding Your Sources of Retirement Income
Following are descriptions of the more typical types of income that can be counted toward your retirement income
- Proceeds from the sale of the business
- Social Security benefits (one or both spouses)
- Pension benefits
- Retirement Accounts (401(k) plans, traditional IRAs, Roth IRAs, and other similar accounts)
- Investments in personal savings accounts
- Part-time/Consulting Work
- Sale of real estate holdings (business building and land)
Understanding where your retirement income will come from is crucial for an entrepreneur’s financial well-being:
Entrepreneurs often take substantial financial risks. If you know where your retirement income will be coming from, you’ll have more confidence knowing that you have a safety net in place, regardless of the success or failure of your businesses and the prices they get when they sell their businesses.
It’s vital to consider retirement as early as possible to make the right decisions to accumulate retirement assets. Retirement may seem a long way off, but the sooner you start the planning and asset accumulation processes, the better off you’ll be.
Knowing where your retirement income will come from could affect your financial decisions. For example, if you already have a solid retirement plan, you may be willing to sell your business to family members.
Because retirement income sources may be taxed differently, understanding these nuances can help you optimize tax efficiency for accumulating, preserving, and distributing assets, now and in the future.
Understanding your retirement income sources can also provide you with some flexibility. If your business does well, you may retire early and live the life you have always dreamed of.
Waterworth Insights: When you consult with Waterworth Wealth Advisors, a Grapevine, TX, wealth management firm, our role is to help you navigate from where you are now to where you want to be. For example, we help you determine the following:
- What is the appropriate level of investment risk for your retirement assets?
- When is the ideal time for me to retire?
- When is it most beneficial to begin taking Social Security benefits?
- How does current and future inflation impact my future cost of living?
- What is the risk I may run out of money late in life?
Identify Your Retirement Expenses
When planning for retirement as an entrepreneur, consider several factors that differ somewhat from those of individuals with more traditional employment paths. With a clear understanding of your anticipated expenses, it’s easier to assess how much income you’ll need in retirement and if your savings will be sufficient in the long term.
Here are five of the most common expenses that entrepreneurs should factor into their retirement income planning:
- Healthcare costs
- Living expenses
- All forms of taxation
- Taxes from the sale of a business
- Leisure, travel, & lifestyle
Waterworth Insights: As experienced wealth management professionals and CERTIFIED FINANCIAL PLANNERS™ (CFP®) professionals, our task is the achievement of your financial goals – now and during your retirement years. We accomplish this by providing tailored advice on retirement planning strategies unique to your circumstances and goals.
Our feeling of accomplishment lies in simplifying your financial decisions, especially as they become more complex later in life. We offer a highly personalized, comprehensive wealth management service that changes with your circumstances
Matching Your Retirement Income to Your Retirement Expenses
A key aspect of preparing for retirement is ensuring your income will be sufficient to cover your expenses for the rest of your life. Estimating your need for retirement income is complex due to several non-controllable influences: Inflation, tax policies, healthcare requirements, emergencies, and other variables.
If there is a potential shortfall, you may need to defer your retirement, reduce your expenses, or explore options for increasing your income.
Waterworth Insights: We are driven by four core competencies that define our firm:
- Personalizing Wealth Management Strategies – Our advisory services are designed uniquely for you, molded by your specific goals, values, and needs.
- Providing Financial Insight – We aim to preemptively address the questions you should ask, providing comprehensive information you can trust.
- Human Relationships – The essence of wealth management extends beyond finances. It’s about those who matter most to you. We build a deep understanding of your beliefs, interests, and goals for a multi-generational legacy.
- Collaboration – We work closely with your other advisors (CPA, estate planning attorney) to develop a comprehensive wealth management solution that meets your needs.