The business owner’s retirement roadmap

It’s amazing how many business owners share a similar story. They pour years of their time, energy and resources into building a successful business. But by the time the word “retirement” really starts to appeal, they realise that their neglected personal finances are (let’s put it nicely) in a bit of a mess.

Then come the questions. Can I afford to retire soon? Will it be instant or gradual? How should I take money from the business? Can I help my family financially? When this happens, the prospect of getting retirement-ready feels overwhelming and it’s difficult to know where to even begin.

If you’re in the same boat, don’t worry. We’ve put together this retirement roadmap to help you get your finances organised and make your retirement goals a reality.


Before retirement

If you remember one thing from this article, make it this: start early. Busy business owners often think they can wind down in a few months, but evidence shows it can take three-to-four years to do it properly – from first thinking about it to actually stepping out.

So, take it off the “someday” pile. The day you realise you want to retire – that’s the best time to start. As for the place, it all begins with your first step.

1. Establish your goals

Every journey has a destination. What’s yours? Think about the things that are going to bring you fulfilment in retirement. Taking holidays? Seeing family? Moving home? Staying busy with part-time or charity work? The clearer your vision, the more you can do to achieve it.

It also helps to build a rough picture of how long you want to be doing these things for. People typically spend more in their early retirement, then slow things down later. How might your lifestyle and spending priorities change as the years progress?

2. Explore the possibilities

With your goals down, it’s time to do some financial forecasting. This will show you if and when you can afford to retire in line with your goals – based on your expected spending.

Consider all your income sources (including your partner’s, if applicable), along with your spread of assets and outstanding liabilities (such as a mortgage or children in education).

It’s easy to get blown off course by external events, so test how shock proof your forecast is using ‘what-if’ scenarios. For example, what if your expenditure is a third higher than anticipated? What if the stock market falls and impacts your investments? What if you do part-time work at three days per week?

If your forecast doesn’t hit your goals, then there are a number of tax-efficient ways you can use your business assets to help plug the gap (see step 4 for more on this).

3. Create your strategy

OK, so you’ve got a target retirement date in mind, along with a desired income amount plus an initial capital lump sum to pay off debts or fund a wild, welcome-to-retirement spending spree (the choice is yours)!

Next, it’s time to start extracting money from your business. This could be all in one go or, more likely, over the course of a few years up to retirement. Plan how you’ll exit the business – whether selling it on or winding it up – and therefore how you’ll treat employees.

This is also a good time to review the various financial and protection policies you’ve accumulated over your working life – ISAs, pensions, savings accounts, life insurance policies – the whole lot. Bin the ones you won’t need in retirement, consolidate the ones you will. Determine how you’ll order these policies to get the most efficient income streams.

Explore the options with your business advisors (accountants, solicitors and financial planners) and make sure they’re all on board with the same plan.

4. Get tax efficient

Once you have a plan outlined, make sure you’ll be paying the tax office only what’s necessary. The rest you deserve to maximise for your retirement goals. As a business owner, there are a few ways to boost your tax efficiency.

For example, you may be able to claim Business Asset Disposal Relief (BADR), which replaced Entrepreneur’s relief in 2020, to reduce the capital gains tax you’ll pay on disposing of your company.

Adding to a pension scheme is another tax-efficient way of moving assets out of the business to you (just make sure you factor in the allowances and limitations of your particular pension scheme).

After retirement

You’ve made it! With your business in the books, it’s time to start enjoying the good life. Now the focus is on making your hard-earned money work hard for you. Here’s how.

5. Draw smartly

Many people assume that their pension is the first pot to raid for their retirement income. But if you want to be tax savvy, it’s generally better to draw from your pension last because it’s outside of your estate and won’t be subject to inheritance tax.

Savings are a better place to start because it cuts your inheritance tax bill and there’s no interest. But don’t leave yourself short. What’s the minimum savings threshold below which you might lose sleep at night worrying? A good rule of thumb is to keep at least this amount accessible in savings as a rainy day fund.

It may take a few years to settle into your retirement lifestyle and spending patterns. Plus, changing legislation or personal circumstances might require you to adjust as you go. Keep your plans flexible rather than fixed and you’ll be just fine.

6. Gift early

Following retirement, you may want to give others in your family a helping hand through gifting. It’s a great way to reduce your eventual inheritance tax liability – plus, they may need the money more than you! But a gift is still deemed to be part of your (taxable) estate for another seven years, so again, it pays to do it sooner rather than later, if affordable.

Trusts are another effective way to shelter money longer term from inheritance tax. A flexible or lifestyle trust is like a halfway house between holding money and gifting it – you retain some control over when and how much money a person receives and, if needed, you can always take your money back!

7. Invest wisely

In the short term, you’ll need cash to live on. But with interest rates rising below inflation, vast amounts of money left in the bank will lose purchasing power over time. So, if you have proceeds from your business sale or pension contributions made before, investing it can be a good route to preserve or grow their value in the long term.

If you have a healthy appetite for risk (and let’s be honest, as a business owner, you probably do!), you could consider adding up to £20,000 per tax year to an investment ISA,. If you want to play it safe, a cash ISA may give you a better return than a regular bank account.

As you settle into your retirement pattern, regularly check your income sources against your expenditure and keep monitoring investment performance over time. This way, you can make sure you stay on track and keep up that retirement lifestyle you deserve.

A friend for the journey

Retiring as a business owner is a big decision that will impact upon the rest of your life. As experienced chartered financial planners, we’re here to make your road to retirement an easier and more rewarding one. Contact us or learn more about how we can help you make your retirement goals a reality.

Author: Stuart Ferris, Associate Director and Charted Financial Planner.

Stuart Ferris

The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy.
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