Retirement Planning for Business Owners: Expectations and Misconceptions

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Retirement Planning for Business Owners
Expectations and Misconceptions
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• Heres a reality check for those business owners
  whose expectations and misconceptions about
  saving for retirement prevent them from starting
  and maintaining a retirement plan through their
  business.
• The State of Business Owners Retirement Planning
• Lets start with the big picture. Its no longer
  debatable that Americans arent saving enough for
  retirement and that those savings are not going
  to be adequate. Only approximately 50 of the
  work force is covered (and not necessarily
  participating) by an employer-sponsored pension
  plan which hasnt change for almost 30 years.
• Business owners are less likely to have a
  retirement plan than people who work for them
  according to the Small Business Administration.
  Why not? In many cases, their expectation and
  misconceptions get in the way.

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• Expectations
• According to a recent Guardian study, 35 of
  business owners are expecting to fund their
  retirement through the sale of their businesses
  and only 17 have identified potential buyers.
  The reality is that they may not be sell their
  businesses when they want to, or if the price
  they can get is for the value (at least in
  their minds) of the business.
• Misconceptions
• Theres no formal study on the misconceptions
  business owners have regarding starting
  retirement plans, but Ive got plenty of
  anecdotal evidence. Here are some of the
  objections I hear from business owners with an
  appropriate response

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• Retirement Pension Plan are too expensive to
  set-up and administer. The 401(k) marketplace
  provides a wide range of choices, business
  models, and delivery methods. The business owner
  has a choice to have a plan is both
  cost-effective and easy to maintain.
• I have to make a contribution every year. Not
  exactly. A 401(k)/profit sharing by its very
  nature generally allows the business owner to
  make contributions determined each year on a
  discretionary basis.

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• I have to provide the same contribution to the
  employees as for me. Not necessarily. There are
  allocation methods such as New Comparability
  which may permit a larger contribution for the
  owner than for the other employees.
• The tax laws will limit my ability to maximize
  my 401(k) contribution if not enough employees
  participate. Again, not necessarily. A 401(k)
  Safe Harbor Plan may permit the business owner to
  automatically meet the 401(k) test at a
  reasonable cost for the other employee.

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