Retirement Reality Check: When Your Business IS Your Retirement Plan
By Jason Nees
Sarah built her marketing consultancy from nothing. Fifteen years later, at 52, she's proud of what she's accomplished. The business generates $2.3 million in annual revenue, she has twelve employees, and her accountant tells her the company is worth around $1.8 million.
But last month, Sarah had a conversation with her financial advisor that kept her awake for three nights straight.
"How much do you have saved for retirement outside your business?" he asked.
Sarah's answer: $47,000 in an old 401(k) from her corporate days, plus about $15,000 in a savings account.
Sound familiar? If you're an entrepreneur in your 40s or 50s, Sarah's story might hit uncomfortably close to home. You've built something valuable, something you're proud of, but when it comes to retirement planning, you've essentially put all your eggs in one basket – a basket you can't easily convert to cash when you need it.
The Dangerous Assumption Most Business Owners Make
Here's the thought process that gets entrepreneurs into trouble: "My business is growing in value every year. When I'm ready to retire, I'll just sell it and live off the proceeds."
This assumption has three massive flaws:
The business might not be worth what you think it is. That $1.8 million valuation? It might be based on outdated multiples, optimistic projections, or the assumption that you'll stay involved. Founder dependence can cause severe value erosion at exit.
You might not be able to sell when you want to. What if the economy tanks right when you turn 65? What if your industry gets disrupted? What if you become disabled and can't work, but also can't sell because the business depends entirely on you? There are many unknown factors that can contribute to timing of a sale.
The tax hit could be devastating. Selling a business often means recognizing all that gain in a single year, potentially pushing you into the highest tax brackets and costing you hundreds of thousands in unnecessary taxes.
The Real Problem: Your Business Owns You
Most successful entrepreneurs fall into what I call the "Golden Handcuffs Trap." The business generates great cash flow, but only if you're actively running it. You can't step away for more than a few weeks without things starting to fall apart. Instead of building wealth, you’ve created a job that is fully dependent on you.
Consider these warning signs:
Your business can't operate for more than a month without your direct involvement
More than 70% of your net worth is tied up in business equity
You haven't paid yourself a consistent salary because "the money is better invested in growing the business"
You have no clear succession plan or exit strategy
Your retirement plan literally begins and ends with "sell the business someday"
If any of these sound familiar, you're not alone. According to a study by the Exit Planning Institute 75% of business owners have no exit strategy, and the average entrepreneur has 80% of their wealth tied up in their business.
Why This Strategy Fails
Let me tell you about Mike, who owned a successful HVAC company for 30 years. At 64, he was ready to retire and expected to sell his business for $3 million. But when potential buyers looked under the hood, they discovered the company had no systems, no documented processes, and was entirely dependent on Mike's relationships and expertise.
The offers came in at $800,000. Mike couldn't afford to retire.
Or consider Jennifer, who built a thriving retail chain. She planned to sell at 62, but the retail apocalypse hit just as she was ready to exit. Store closures, changing consumer habits, and economic uncertainty meant her $4 million business was suddenly worth less than $1 million.
These aren't worst-case scenarios; they are common outcomes when your entire financial future depends on a single asset that you can't control or easily liquidate.
The Retirement Income Reality
Even if everything goes perfectly and you sell your business for exactly what you hoped, there's still the challenge of replacing your income. If you're used to pulling $300,000 per year from your business, you'd need to sell for about $7.5 million to generate the same income using the 4% withdrawal rule.
But remember, that $7.5 million needs to be after taxes and after paying off any business debt. If your business is actually worth $5 million but has $1 million in debt, and you face a 30% tax hit on the sale, you're left with about $2.8 million – enough to generate maybe $112,000 per year in retirement income.
That's a significant lifestyle adjustment from the $300,000 you're used to.
Building a Real Retirement Plan
The good news? You still have time to fix this, but it requires changing how you think about wealth building. Here's what successful entrepreneurs do differently:
Pay yourself first, consistently. Set up a real salary and stick to it, even when the business could use more investment. Treat building personal wealth as seriously as building business wealth.
Maximize tax-advantaged accounts. As a business owner, you have access to powerful retirement vehicles like SEP-IRAs and Solo 401(k)s that can let you save $60,000+ per year in tax-deferred accounts.
Diversify systematically. Take a portion of business profits each year and invest them outside the business. Real estate, index funds, bonds – anything that isn't correlated with your business success.
Build systems, not dependencies. The most valuable businesses are those that can run without their owners. Invest in processes, training, and management systems that reduce your day-to-day involvement.
Plan your exit from day one. Even if retirement is 15 years away, start thinking about succession planning, management development, and what would make your business attractive to buyers.
Taking Action Today
When you're focused on growing your business and managing daily challenges it can be overwhelming to take action. But remember: every year you wait makes this problem harder to solve.
Start with one simple step: calculate how much income you'll actually need in retirement, then work backward to figure out how much wealth you need to generate that income. The gap between that number and your current non-business assets is your wake-up call.
Your business has been an incredible wealth-building tool, and it should continue to be part of your retirement strategy. But it can't be the only part. The most successful entrepreneurs are those who build businesses that can eventually thrive without them – creating both lifestyle freedom and financial security.
The question isn't whether you'll retire. The question is whether you'll retire by choice, on your terms, with the lifestyle you want – or whether circumstances will force your hand when you're not prepared.
Ready to find out where you really stand? Chat with our team to understand if you are retirement ready.
This material is for informational purposes only and is not an offer or a solicitation to sell or subscribe to any investment and does not constitute investment, legal, regulatory, business, tax, financial, accounting, or other advice or a recommendation. All investments involve some degree of risk, including loss of principal. Diversification will not guarantee profitability or protection against loss. The example scenarios shared herein are for illustrative purposes only and are not based on actual experiences.
