BMO Wealth Management asks: As a small business owner, do you have a retirement contingency plan?
The answer for most, according to BMO, is a resounding "No."
In a survey of 403 small business owners age 45 to 64, 75 percent say they have saved less than $100,000 and only 8 percent say they have saved more than $500,000. BMO defines small businesses as having two to 100 employees.
“We found that fluctuating profitability affects business valuations and the funds available to support the retirement lifestyle of business owners,” says Jason Miller, national head of wealth planning at BMO Wealth Management (U.S.). “Planning for retirement can be difficult, especially if they are depending on the sale of their business or continuing to draw income from the operating business.”
The survey also found 90 percent of business owners pay themselves less than $100,000 a year, with 1 percent drawing $500,000. Four out of every five say they are able to save $25,000 or less for their retirement on an annual basis.
“If the sale of your business is part of your retirement plan, there are steps that can be taken in advance to maximize enterprise value and after-tax proceeds," Miller says. "Also, it cannot be emphasized enough that an effective retirement contingency plan should include savings outside of the business assets.”
BMO urges small business owners to create a business plan, find sources of capital such as lines of credit, venture capital or government loans, and do effective tax planning.