Retirement planning: 4 golden rules for small business owners (2024)

FAQs

What 4 factors must be considered when making individual retirement plans? ›

Though ideally, a small business owner can sell their business before retirement for a tidy profit, this is not always guaranteed nor is the sale amount. Some ways small business owners can ensure retirement savings are by establishing a SIMPLE IRA, a SEP IRA, a traditional or Roth IRA, and a Solo 401(k).

The golden rule of saving 15% of your pre-tax income for retirement serves as a starting point, but individual circ*mstances and factors must also be considered.

You must save at least around 10% of your income every month. Holding the funds and investing them in liquid funds will help you. Liquid funds are a type of debt mutual fund that invests money in fixed income instruments like FDs, paper, deposit certificate, etc.

The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.

Withdraw too little and you may not live the life you want to in retirement. Our guideline is to limit withdrawals to 4% to 5% of your initial retirement savings,⁴ then keep increasing this withdrawal based on inflation. Read Viewpoints on Fidelity.com: How can I make my savings last?

SEP-IRA. A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small business owners. When establishing a SEP-IRA Plan for your business, you and any eligible employees setup a separate SEP-IRA.

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

Why the 4 rule no longer works for retirees? ›

In addition to ignoring other income streams like Social Security, the 4% model also falls short in that it does not provide a lot of spending flexibility. Retirees who are depending on their savings to fund essential expenses would want to have a conservative approach.

This rule is based on research finding that if you invested at least 50% of your money in stocks and the rest in bonds, you'd have a strong likelihood of being able to withdraw an inflation-adjusted 4% of your nest egg every year for 30 years (and possibly longer, depending on your investment return over that time).

1 – Never lose money. Let's kick it off with some timeless advice from legendary investor Warren Buffett, who said “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No.

From these seven truths can be derived The Four Golden Rules for winning the active management game. They are: (1) Use specialist products; (2) Diversify manager research risk; (3) Diversify investment styles; and, (4) Rebalance to asset mix policy.

The process of creating a retirement plan includes identifying your income sources, adding up your expenses, putting a savings plan into effect, and managing your assets. By estimating your future cash flows, you can judge whether your retirement income goal is realistic.

William P. Bengen is a retired financial adviser who first articulated the 4% withdrawal rate ("Four percent rule") as a rule of thumb for withdrawal rates from retirement savings; it is eponymously known as the "Bengen rule".