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Will You Be Financially Ready When You Want to Stop Working?

Small Business Finances �Rich Best
Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.

Will You Be Financially Ready When You Want to Stop Working?

Will You Be Financially Ready When You Want to Stop Working?

It’s not uncommon for business owners to neglect planning for the day they stop working because many believe they will work forever. However, not only is that unrealistic, it also could put their future financial security in serious jeopardy.  Achieving financial independence is not always about retirement. For business owners especially, it can be about knowing they have the option to stop working if they want to. Either way, it’s important to have a plan. The longer you wait to plan for your exit from your business, the fewer options you could have when you arrive at that critical juncture.

Here are four steps to take right now to get on track for financial independence.

Establish clearly defined goals

financial picture

You need a target to know how high to aim. But it needs to be more than a simple target date and income goal. Without a clear vision of your life after your business, you may not be able to muster the motivation to adhere to a planning strategy. Be specific about how you want to exit your business and what you want to do in your next stage of life. Then translate your vision into specific goals with a timeline and benchmarks you can track along the way.

Estimate your expenses in retirement

You need to know how much you will be spending in retirement to know how much you need to save. You could follow the 70% rule of thumb, which says that most people will only need 70% of their current income to cover the living expenses in retirement. However, retirement costs have been increasing and lifespans have been expanding. The rule also doesn’t account for the possibility of taking care of aging parents or lending a hand to struggling children. Nor does it account for the probability of you or your spouse needing long-term care.

If your time horizon is within 15 years, you should be in a position to do a line-by-line estimation of all your expenses in retirement, which will give you a better target to hit.

Invest for real returns

  • Investing your money in safe or guaranteed instruments may provide peace of mind that you won’t lose any money due to market fluctuations; however, each day that your returns fail to exceed the rate of inflation, you are, in effect, losing money, and that loss becomes more pronounced over time.
  • There is a way to invest conservatively that will minimize market risk, reduce portfolio value volatility, and overcome the risk of inflation. The key is in knowing what your financial objective is in real terms. Factor in the true cost-of-living and taxation, in order to know the minimum rate of return you need to generate, and, therefore, the level of risk you need to incur. With an investment strategy tailored to your specific needs, you need not take any more risk than is absolutely necessary to achieve your objective. And even with that, a well-conceived investment strategy will incorporate methods to mitigate most of the risk.

Always know where you are in relation to your goal

One only has to look back on the last couple of decades to be reminded that the economy and the markets can change rapidly and that people’s circumstances can also evolve quickly. It is important to think of your plan as a living organism that responds to its environment and what evolves may not look anything like what you originally envisioned. However, if you take frequent snapshots, you will be able to make the small adjustments needed to keep it on track to achieving your goals. Many people simply continue to save, which is good, but the trajectory of your retirement account can be easily thrown off track if you are not monitoring its progress each year. With a clear vision and specific goals, you’ll always know where the target is and how close you are.

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