You’ve put a lifetime of blood, sweat, and tears into building a successful enterprise corporation—and that is likely not just a figure of speech. After decades of keeping your enterprise healthy and thriving, it’s finally time to hang up your hat, roll down your sleeves, and spend your twilight years in leisure.
However, retirement planning for business owners can be more complex than for the average employee. If you want to secure your business and your future, your retirement and estate planning strategies both need to work together—and the estate and probate law experts at MHPS are here to show you how.
Answering Business Owners’ Biggest Questions About Retirement Planning
For starters, what exactly does “retirement” mean for a business owner? It might surprise you, but it’s not as straightforward as it is for employees who have deductions taken out of their paychecks to go toward Social Security and their 401(k) or Roth IRAs. Even the simple question of “Are you retired?” isn’t simple for business owners, as the Social Security Administration explains.
How does the SSA know when you’ve retired?
As a business owner, telling the SSA you’ve retired isn’t much different from an employee announcing retirement. However, are you really retired? If you’re still involved in your business, such as continuing to render consulting services or owning stock in your business, you might only count as semi-retired. For these reasons, you’re required to send additional information to the SSA, such as completing a Self-Employment/Corporate Officer Questionnaire (Form SSA-4184) form.
Do business owners get Social Security when they retire?
Like employees, business owners do receive Social Security benefits, as long as you’ve paid into them in your working years. If you paid yourself W-2 income like your employees—in other words, a salary—you contribute to Social Security through your payroll taxes. Otherwise, paying into Social Security means paying self-employment taxes on your net earnings.
Once you’ve retired, you receive benefits just like your employees. The Social Security Administration calculates benefits based on your 35 highest-earning years of reported income and your age at retirement.
How should business owners plan for retirement?
Whether you’ve built a small family business or a massive corporation, entrepreneurs like you don’t just have to worry about your Social Security deductions or the money you’ve put away in your 401(k). Retirement planning for business owners also involves establishing an exit strategy and succession plan, valuing your business interests, and assessing tax-efficient strategies to maximize your retirement income.
In other words, in addition to a retirement plan, you need an estate plan.
Why Business Owners’ Retirement and Estate Planning Need to Work Together
For business owners, retirement planning is a much more complex and multifaceted process. Retirement isn’t just about stepping away from work—it’s about ensuring the financial health of your business and your legacy.
Your financial situation, business operations, and family dynamics are more deeply entwined than anybody else, so your retirement planning and estate planning strategies both have to work together in harmony.
Strategies for Integrating Your Retirement Into Your Estate Planning
When building your estate plan, it’s normal to think ahead to the hereafter—but your eventual passing (hopefully) won’t be how your business passes from one generation to the next. Thinking about your retirement in the context of your estate plan helps ensure you receive the leisurely retirement you deserve. Some ways you can incorporate retirement into your estate plan include:
Optimizing Your Tax Strategies
As a retiring business owner, you have plenty of tax and legal considerations that could impact your retirement, which the ordinary employee usually doesn’t need to be concerned with. By integrating your plans for retirement into your estate plan, you can minimize the tax burdens on both your business assets and your retirement savings.
For example, using your estate plan allows you to structure your eventual business sale and transfer of business interests when it’s time for you to step down. How you structure your sale or transfer can provide a source of retirement income in itself while ensuring a smooth succession of ownership. Your estate plan can reduce capital gains and estate taxes and avoid double taxation or spread out the tax impact over a longer period of time, ensuring that you keep the most of the resources you’ve accumulated to support yourself in retirement and preserve your wealth for your heirs.
Planning for Healthcare Costs or Incapacity
Ideally, you would want to spend your golden years in good health, but it’s possible for your health to take a turn for the worse in your retirement—or before you retire. Consolidating your retirement and estate planning provides you with avenues to ensure that healthcare and long-term care expenses in your golden years pose less of a risk of cutting into your retirement savings.
For example, you can utilize long-term care insurance to prevent retirement and estate assets from being depleted by healthcare expenses. You may also be able to place assets into irrevocable trusts for your heirs in order to qualify for Medicaid coverage.
In combining your retirement planning and estate planning, you can also establish Durable Power of Attorney to handle your financial decisions, or use healthcare directives to outline how you would want your retirement savings used for medical care if you become incapable of making your own healthcare decisions.
Periodically Reviewing and Updating Your Estate Plan
Even the most carefully made plans can still go wrong. If your health situation, family dynamics, or your business’s economic positioning change, your estate plan can quickly become out-of-date and out of step with the new circumstances you find yourself in.
For the sake of preserving and maximizing your retirement income and protecting your business’s legacy, you should revisit your estate plan for updates with professional advisers on a regular basis—and especially after major life changes.
Retirement Planning for Business Owners with Tennessee’s Trusted Estate Lawyers
At first glance, estate planning might seem like it’s only concerned with what happens when you pass away at the end of a long, successful life. However, your estate plan is so much more than that. Set up properly, your estate plan can establish the foundation for a financially secure and personally fulfilling retirement as well.
The best time to start building your retirement and estate plan is well before you need it. The second best time, wherever you are in your life and your career as a business owner, is right now. At MHPS Law, you’ll find experienced lawyers who know Tennessee estate and probate law inside and out—and are well versed with the unique challenges high-asset individuals and business owners face in building airtight plans for their golden years and well beyond.
Contact us today for a consultation with our legal team on how to plan your future, your business’s future, and your heirs’ futures.
