Retirement planning for entrepreneurs

Today, there are more self-employed entrepreneurs, freelancers and small business owners than ever before. Running your own business can be incredibly rewarding in ways that go beyond the merely financial. However, it also takes up a lot of time and energy, and as a result, non revenue generating considerations like retirement planning can easily fall by the wayside.

From poor planning to bad pension advice, there are so many pitfalls that can damage your retirement plans.

There are, however, simple measures that small business owners can take that will relieve that nagging worry about what will happen down the line. Here are five things that every SME owner should keep in mind when retirement planning.

retirement planning

Smart saving strategies

Always keep a handle on how much you can save on a tax-free basis in each tax year. This has a tendency to be adjusted from one year to the next, so stay on top of the latest situation and always discuss with your accountant to understand what amounts you might be able to carry forward to the next year.

This concept of carrying forward can be particularly handy when a business needs to ensure cash flow remains healthy. It essentially means pension contributions can be deferred and money held within the business and switched into pensions at a later date when the cash position is less perilous.

Better tax efficiency

If you operate a limited company, it is going to be more tax efficient for the company to make the pension contributions than for you to draw a salary and then put a proportion into a pension fund. The reason for this is that your income will be subject to national insurance, but a direct pension contribution will not.

Include the whole family

If at all possible, you should include your spouse and other members of your family in the business. You can accrue assets in your spouse’s name and make use of the various tax free allowances and investments that might be available to them. These include products like cash or investment ISAs – take a look at the information on the Wealthify website to find out more specifics on what is available and how they work.

Turn your business into a pension fund

As retirement approaches, some business owners consider selling up. However, another option is to simply let the company accrue cash and then draw on it for the years after you stop working. In effect, the business behaves like a second pension fund. This strategy makes sense from a tax perspective and also gives you the flexibility to decide year by year on whether to draw money as dividends or as income.

Preparing your exit strategy

If selling the business is your ultimate aim for a prosperous retirement, then start planning well in advance. Have a long conversation with your accountant to discuss possible tax breaks such as entrepreneurs’ relief, which will mean the business proceeds are subject to reduced capital gains tax of just ten percent. You can then use the proceeds from the sale to put together a retirement portfolio that will provide funding in parallel with your pension.