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Solving the small-business owner's retirement puzzle

October 26, 2010

by Christopher Tasik | MoneyRates Guest Contributor


This article is part of a MoneyRates.com series, 10 steps to a comfortable retirement.

A recent Google search of the words "small-business retirement planning" yielded more than 6.8 million entries. Yet many small-business owners have not yet developed a comprehensive retirement plan. Those who have done some sort of planning often have adopted a set-it-and-forget-it mentality. With all the information out there, clearly, something is lost in the translation.

Let's start with suitability. There are a variety of different plans because there are a variety of small-business types. Your plan should meet your needs and evolve as your business changes. If you work with a financial planner, there must be a clear mutual understanding of your needs and goals. I have a bias towards CFPs®. Check out www.cfp.net to learn about the standards to which a CFP® is held. A good financial planner can help guide you toward the right plan for your needs. If you plan to do it yourself, do your homework first.

Saving enough to invest

Numerous studies have shown that the switch from defined benefit plans -- the ones where you automatically get a monthly check in retirement -- to defined contribution plans -- the ones where your contributions create a pool of money to live on in retirement -- do not seem to be working as planned. While turbulent markets seem to get a lot of the blame, the real issue is that people are not contributing regularly and early enough to their defined contribution plans at the levels necessary to fill their pool.

Many small-business owners are still relying on outdated investment strategies. Your investment plan should consider exposure to alternative investments (assets that are not expected to move in sync with broader markets) and investment options that have some downside protection (the ability to move to safer havens when storms may be coming). If you have a 401(k), you should have a written investment policy statement, conduct and document annual plan reviews as part of a comprehensive compliance plan, and make sure every fee is disclosed, understood and drives value.

Fitting the puzzle pieces together

Most importantly, think of your retirement plan as a puzzle that when complete will let you reach your goals. One piece is your defined contribution plan. Another should be your business exit strategy. Are you building an asset that you can sell or a lifestyle business or practice that will yield little value when you are ready to retire?

Next is your retirement lifestyle. Do you plan to work as a consultant in your industry in retirement? Will you want to do other part-time work? Trade down from a big house to a smaller one? Will you inherit wealth? If you have a plan in place to solve your puzzle, you can focus your attention on what matters: running your business and reaching your goals.

I know that I picture spending my retirement lying on a beach in a tropical paradise sipping margaritas, not being the gray-haired bartender making them!

Read more financial advice from our series, 10 steps to a comfortable retirement.


About the Author:

Christopher Tasik, CFP®, is the founder and Managing Director of Tasik Financial Strategies LLC (TFS). Prior to forming TFS, Mr. Tasik was affiliated with a Stamford-based financial planning and investment management firm. Immediately prior, he was a Principal of a NYC-based oil and gas financial intermediary.

Mr. Tasik is a Certified Financial PlannerTM Professional, NASD Series 7 (Registered Representative), Series 63 (Uniform Securities Agent State Law) and Series 65 (NASAA Uniform Investment Adviser Law) licensed. He is also a licensed life insurance broker.

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