You may love the thrill of launching a venture or running a business. Retirement may not be a word in your vocabulary (yet), but it is worth thinking about even at the earliest stages of business ownership. Planning for retirement will not only set you up for success in your personal financial life but may even make you a more effective business leader. These three considerations are a good place to start.
Retirement Plans – Don’t Discount Their Benefit
Your business is an asset and you may be planning for future liquidity to fund whatever comes next. As a CEO, you believe in your business and its ability to generate value, but that doesn’t mean you can’t make smart decisions now about ways to build liquid net worth. No matter the size of your business, there’s a tax-advantaged retirement plan out there that can benefit both you and your employees. Contribution limits and features vary among plans, but one thing is common: the power of tax-deferred earnings that compound year after year. Compounding earnings have a snowball effect over long periods of time with positive implications for your net worth.
Consistent retirement plan contributions can diversify the highly concentrated exposure you likely have to your company. A retirement plan will allow you to invest more broadly in the market and may help you sleep more soundly at night knowing that you can rely on something other than your business alone for your future financial success.
A tax-advantaged retirement plan for employees may also help you bring the best talent to your company and provide incentives for them to stay with you. The reality is that most people will have to fund their own retirements, with pensions declining in prevalence and Social Security remaining vulnerable to political inertia. Your company relies on engaged, motivated talent to drive results. Making saving for retirement easy for your employees and part of the tax-advantaged benefits you provide can go a long way in attracting and retaining rock star employees who will grow your business.
Envision Your Exit Now
With large implications for your future wealth, you must think realistically about what’s ahead and how to align your exit with your personal financial priorities. An exit may feel far into the future, but planning now can help you identify potential roadblocks, course correct, and focus your energy on the strategies that will get you where you want to go.
Business owners naturally tend to plan for their business first and their current/future selves second. Take the time to focus on yourself and your family and ask the question: “What’s the money for?” – a traditional retirement with a certain lifestyle? A break from work before launching the next venture? There is no prescriptive answer or action plan with something so uniquely personal, but starting to assign dollars and numbers to ideas that feel abstract will clarify what you need from the business at exit to meet your personal objectives. Knowing exactly how much money you need and how different deal structures align with your preferences will enable you as a CEO to make strategic choices about what to pursue as the business grows and evolves.
You don’t have to go it alone – a Certified Financial Planner can help you create a holistic roadmap for your future, removing anxiety of the unknown by connecting what you know about your business today to what you need down the road, along with ways to mitigate the risk of things not panning out the way you expect in terms of liquidity from your business.
Assess Risks and Protect Against Them
Unexpected life-changing events can happen in the blink of an eye. You may be very clear on the kinds of risks your business faces, but it is worth auditing the personal risks that can derail even the best-laid plans. What if you become severely disabled and are unable to work while your business is still dependent on you? Or what if you are held personally liable for an incident that causes damage or injury to another person outside of the context of your business? These kinds of events can impact the current and future value of your business, erode your personal assets, eliminate your ability to earn an income and build wealth, and ultimately impact your ability to retire on your terms.
The good news is you can protect against these risks in the form of insurance – personal disability insurance, personal liability umbrella policies, and business overhead expense insurance are just a few of the kinds of policies that may meet your needs. Along with planning for the big picture, a Certified Financial Planner can help you assess your personal risks and recommend insurance policies to protect your ability to retire. The cost of insurance is small compared to the long-term financial impacts of life’s twists and turns. Taking steps to ensure that your business and your personal wealth can survive these events may help you be a focused, confident CEO and boost the confidence of your employees who rely on your leadership for their well-being.
No one can deliver tomorrow to you today. Still, you want to know you have enough—to live on, to pass on, to provide for. Security isn’t being able to predict the future; it’s about knowing you have a solid plan in place. Taking the steps now to start assessing the big picture and developing a personal action plan can go a long way in creating the sense of security that will ultimately enable you to be a successful leader.
Emily M. Harper, CFP®. Private Wealth Advisor, Monument Wealth Management
Emily’s background in the financial industry began after she graduated from the University of Virginia. During a seven-year run in various advisory and leadership roles at a global asset management firm, Emily acquired four industry licenses, a certificate in Financial Planning from UVA, and her CERTIFIED FINANCIAL PLANNERTM designation. As a Private Wealth Advisor, Emily loves collaborating closely with her clients to make sense of their complex financial lives. There are many intricacies and competing wants, big ideas, and small obstacles. Emily gets great satisfaction knowing that she plays a role in helping families achieve their life goals.