Martin Atkins – Strategic Advisory Partner
Running a successful business has it’s benefits and challenges. You work hard to reap the rewards for the present in the hope of providing for your future. But when it comes to the big ‘R’ – in this context ‘Retirement’ – are you taking the time to stop, plan and ask the very real question ‘what happens next?’.
In our experience, when it comes to their business SME owners widely acknowledge that they need to plan for retirement, but struggle to know where to start. Taking inspiration from a number of sources we’ve pulled together SEVEN questions that we think will change the way you plan for the next stage in your life. The thing to remember is that it’s never too early to start planning for retirement (even you fresh faced entrepreneurs) and it’s never too late to adapt your plans to reflect your ambitions.
1 – When do you want to stop working?
45, 51, 65? Nowadays retirement is less about age and more about your circumstances and although a very obvious question to start with, being honest with yourself about when you really want to stop the 9-5 is crucial. With life expectancy in the UK at 79 years for men and 83 years for women and the official UK state pension age set to continue rise (currently 65 men and 60 for women), being aware of when you want vs. can financial afford to retire will help you visualise how you’re going to get there and whether your plan is achievable.
2 – What’s stopping you?
For many the first thing that will spring to mind is “but I don’t have enough money to retire when I want!” Whilst this may be true, the amount of money is not what is stopping you but in fact your financial and emotional responsibilities e.g. dependents (children, elderly parents), mortgages, loss of job satisfaction, and routine
While these are all important to tackle, one area often overlooked by the SME business owner is their business; more specifically as you plan for retirement what does the future of the business looks like?
When we talk about the future, we’re thinking about your business and its succession plan. How will you support the current management team and developing your future leaders? Are you using three-way forecasting to stress test even the toughest business scenario? What does your business vision and strategy look like? Do you have the right infrastructure and reporting systems in place to allow you and the team to have remote visibility on all your KPIs? If you’re struggling to answer any of these – and many other business vision and planning questions – then we need to talk #BrighterThinking.
3 – What do you want to do when you retire?
This may be a far reaching question, but focusing on the things you love and that will get you up in the morning will ensure you can plan effectively. Do you want to travel, buy and do up a classic car, spend more time with the grandchildren, tick off your bucket list? Think big and then focus on what’s important to you. You’ll understand why when you read the next key question.
4 – How much will it cost?
If you skipped down to this perhaps roll back up the page; if not, then this question won’t come as a shock. Retirement costs. Research by Which? estimates that the average UK retired couple need in excess of £18,000 per year in order to cover the household essentials; and that’s without ANY frills. So ask yourself this, what level of retirement fund will you need in order to sustain your current lifestyle, retirement aspirations or at least allow you to live comfortably?
5 – Where will the money come from?
So now you have an idea of how much your retirement might cost per year, it’s now time to think about how you’re going to pay for it.
Typically, individuals heading towards retirement will have a pension (state and private – often a company product), owner or joint owner of assets (such as a house) and a modest collection of savings and/or investments, but as an SME business owner have you considered your corporate wealth?
N.B. We’d always recommend seeking independent financial advice from our friends at Menzies Wealth Management (MWM) or your own trusted financial advisor to ensure you’re maximising your own wealth.
When we sit down with SME business owners, we take the time to understand all of the above and investigate the current and future value of their business. Using three-way forecasting, business structuring, vision, strategy and tax efficient (personal and business) planning models, SME business owners could be surprised at the retirement capital they could unlock.
6 – What are the tax considerations?
When we talk about retirement, good tax advice (to cover both personal and corporate) is key, not just for your peace of mind, but also for the value of your retirement nest egg. So whether your tax exposure is high or low, you need to cover all bases. The last thing you want when planning your future leisure years is a hefty (and unexpected) tax bill from HMRC.
7 – What are your partner’s plans?
So you’ve got your retirement plan in principle, you show it to your partner and they give you a look that says you’re in trouble. Whatever stage in your plan you are at we always recommend you talk it through with your partner to ensure it’s aligned with their expectations and aspirations. When are they going to retire? What do they want to do? Can you afford both of your aspirations?
So, are you really ready to retire?