5 Ways Smart Business Owners Plan for Retirement

Preparing for retirement is a long-term game. For business owners, this process has a few more challenges. A business owner’s plan for retirement needs to be done completely off your own back as you don’t have an employer to help set you up.

This can often mean that business owners aren’t preparing sufficiently for retirement. In fact, a lot of directors assume that they don’t need to plan for retirement as their business will pay for it in the end. Despite this, there are some great ways that smart business owners plan for retirement.

Have a clear vision of where you want to be

The first thing to work out is when you plan on retiring. Based on this, you can then determine how much money you will need to pay off future expenses. You may want to match the amounts you’re earning annually, taking into consideration inflation.

From this, you can then decide how much would need to save each month. Typically, this can be around 15% of your salary. However, you can always start with smaller amounts to ease into it and then increase your contribution each year.

Business Owners: Develop an exit strategy

If you’re planning on selling your business to fund your retirement, then you’ll want to plan it out now. It can take time to find the best buyer at the best price for your business. Whether you need to find a partner, a relative or an employee to take on the business, they may need your time and knowledge before this can happen.

In addition to this, building flexibility into your exit strategy can help you to increase your pension pot. Flexibility gives you the option to sell when the market is stronger or work longer until it is.

Follow the rule of 100

The rule of 100 is a formula for pension investments. With your pension pot, you can invest some of the money to help increase the value. The rule of 100 suggests that you subtract your age from 100. With the number that is left, is the percentage of your current pension pot that you put into investments with a level of risk. This follows the same idea that the younger you are, the higher the risk can be. Towards retirement age, you should slow down your investments in order to guarantee a better pension and avoid risk. With investments increasing your pension pot, you can then invest some more of your money into a bank account or perhaps an annuity to provide more income in the future.

View life insurance as an asset

Viewing life insurance as an asset can help to fund your retirement tax-free and also pay for medical expenses if you become terminally ill. Although life insurance is typically used to replace any lost income and to cover a mortgage to protect your family in the event of your death, it can actually be a good tool for increasing your pension. If you’ve invested in whole life insurance, you may be able to borrow against the policy. This can be used to supplement your retirement income whilst still leaving money behind for your family. The dividends earned from your life insurance investments are only taxable if they succeed the amount of premiums paid. Therefore, you are not required to pay tax on the amount you borrow until the policy is surrendered.


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In addition to this, life insurance can also help to counteract inheritance tax on your estate for your family. When your life insurance policy is placed into a trust, it is exempt from inheritance tax and the money can go directly to your family. This money can then be used to pay inheritance tax that your family will normally have to pay on the estate.

Invest in key person insurance

Key person insurance is a tax-efficient life insurance policy for business directors. If you’re a business owner, the payout of life insurance is tax-free and you can pay for the premiums through your business. Your family get access to a tax-free payout in the event of your death. This life insurance policy can be used to help close down the business, sell the business and finish up any loose ties. This makes life easier for your family who are likely to inherit your business within the estate. They can close contracts, pay any employees severance pay, and compensate for any loss of services.

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Maximise a spouse’s pension

In addition to getting life insurance to increase your own pension pot, it can help to maximise your partner’s pension too. Often, when one partner passes away, the remaining spouse will only receive a percentage of their pension pot if any at all. Therefore, running the same household and living the same standard of life may no longer be possible. By investing in life insurance, you can save them the financial hardship of losing that potential income.

What’s more, it can mean that you can both enjoy the pension together with peace of mind your partner will be protected.

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Top up or delay the date

As mentioned previously, it’s not always a good idea to invest your pension pot in high-risk investments as you get closer to retirement age. For example, if they were to fall in value then there may not be enough time to recover. By topping up your contributions to your retirement, you can claim a higher rate back in tax-relief and boost your overall pot. In addition to this, you can delay the date, this gives you access to a higher state pension as well as being able to increase your own pension pot for a better income.

Consolidate your pensions

If you’ve previously worked for other employers and paid into your pension, it could be a good idea to consolidate your pension pots. AS you get nearer to retirement age, it can help to cut down on paperwork and admin, reducing costs. Put your business owners pension in line with your other pensions to have a better idea of how much you will have during retirement.

Convert your life insurance to an annuity

Some insurance providers allow you to surrender your whole life insurance and use the money made on investments to purchase a life annuity. This can be an effective strategy in gaining more money during your retirement. Provided there are no major tax implications, you can take out a series of payments in retirement. However, you could also still keep the funds behind to leave behind for your family if you were to pass away.

For business owners, planning for retirement may not always be first on the list. Trying to get the business up and running and operating profitably normally takes priority. However, smart business owners start planning their retirement early in order to maximise their funds. With much of your wealth trapped within the business, removing that wealth can be tough. However, jump-starting your retirement plan early can maximise your pension pot. That means you can enjoy all your earnings when you finally want to leave your business.

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5 Smart Ways Business Owners Plan to Retire | BusinessCoverExpert
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5 Smart Ways Business Owners Plan to Retire | BusinessCoverExpert
Planning for retirement for business owners can be difficult as you have no employer paid pension. In order to maximise your pension pot, follow these tips.
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