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Invest in your business or save for retirement?

October 13, 2011

By Heather Larson | Money Rates Columnist

Don Phin, a 54-year-old in Coronado, Calif., doesn't plan to retire any time soon. Like many Americans his age, his decision whether to save for retirement or invest in his business is simple.

"If someone offered me a ridiculous amount, I'd sell my human-resources business," Phin said. "But any plans for me to retire are at least 10 years out."

Because of increased life expectancies and a weakened investment climate, more Americans are finding it necessary--or simply wise--to work as long as they can. As a result, older business owners are often finding it sensible to invest more of their money into their business rather than placing it in a retirement account.

Still, Phin has made careful plans for his retirement savings in addition to investing in his business. He has one-third of his savings in CDs and two-thirds in indexes, bonds, IRAs and SEPs. He's also using an HSA (Health Savings Account) as a retirement vehicle.

But Phin said that, for the time being, he's likely to continue spending on his business. He said that if he creates a constant cash flow, he won't need to sell the business, which will also suit his plan to stay active in his career.

"I want to stay in the game," Phin said. "It will change in kind, but I don't want to completely disconnect from work."

Balancing investing and saving

Jacqueline Gikow, a New York City resident, is also focusing on her business over her retirement for the time being. She'll reach retirement age in two years, but plans to keep her part-time job at an architectural fixtures company and continue with her jewelry-making business well beyond that time.

Even though Gikow and Phin have decided to work longer instead of retire, they still need a sensible plan for an income when they are no longer working.

Jonathan Kennedy Jr., president of Endeavor Capital, LLC in Richmond, Va., said they should have both a business and a personal financial plan.

"Certainly, as a business owner, there are tax advantages to having the correct type of retirement plan, like putting money into an SEP (Simplified Employee Pension) plan at year end," Kennedy said.

Gikow splits her money between a checking account, savings accounts and money-market accounts. But she's not skimping on investing in her jewelry-making operation, either. This year she switched to an HMO health plan, eliminated her telephone land-line and changed her cell phone plan.

All those changes have given her an extra $300 a month to put back into her business. Now she's able to run it debt-free.

"I'm happy with where I am now," she says.

Managing your plans

Kennedy said he is always looking at ways to invest in his business, but that maintaining a financial plan for his family and his business requires careful coordination.

"By integrating them I can dedicate a quarterly and annual percentage to my retirement plan contributions," Kennedy said.

Kennedy said he's not sure he'll ever retire. His grandfather worked into his 90s because he cared for his clients' well-being and liked staying connected to the business that afforded him a tremendous lifestyle.

"My retirement goal is to have a reduced workweek, three or four days a week, be able to travel extensively, and possibly live someplace else for a month or two at a time," Kennedy said.

According to Score.org, only 30 percent of businesses that are put on the market are sold--a potentially surprising statistic to many owners trying to sell a business. But owners can increase the chance of a sale by having all of their records ready before they go to market, having their business professionally valued and getting the business pre-qualified for financing.

Still, for those who are doing work they enjoy, it may make sense to continue working--and earning--for as long as they can.


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