According to new studies, it turns out that the vast majority of entrepreneurs have a glaring financial blind spot. A survey of business owners by BMO Wealth Management found that only a fraction of entrepreneurs are prepared for retirement. In fact, three-quarters of the survey respondents (aged 18-64) had less than $100,000 set aside for retirement.
As an entrepreneur and finance expert, I sit on both sides of the aisle, so while I understand the importance of retirement, I can attest that most business owners, unfortunately, don’t share my perception.
There’s a beautiful reason behind this: most entrepreneurs are dreamers. We reach for the sky and risk it all for our businesses to succeed. Things like retirement (or any semblance of life-work balance) are often a distant afterthought when trying to get our “babies” off the ground.
That being said, statistics show that you shouldn’t ignore retirement as an entrepreneur, or assume your business will provide a windfall. Here are some tips on what to do (and what to avoid) in order to successfully retire as an entrepreneur.
When you’re running a startup and every single dollar counts, it can be tempting to wait until your business is stable to set aside retirement money.
A 25-year-old who invests $5,000 per year for just 10 years will end up with more retirement money than a 35-year-old who invests $5,000 per year for 30 years. (That’s assuming they both retire at age 65.)
Even if you’re not investing $5,000 a year, this goes to show that retirement investing is exponentially easier when you start early. When you wait until your business grows, you’ll end up having to expend much more capital to have the same savings.
Don’t solely depend on your business.
Plenty of entrepreneurs depend on their business as the golden ticket for their retirement. While it’s great to be an optimist, it’s unrealistic and dangerous to expect to sell your business for your exact retirement needs years down the line. That’s not to mention that even successful businesses tend to pan out after a certain lifespan — according to studies, the average mortality rate for businesses is 10 years.
Instead of blindly hoping your business will last, you should come up with a healthy retirement plan with your business’s income. The worst that can happen is that you have extra money stowed away if your business turns into a unicorn.
Keep your risk in check.
The majority of entrepreneurs are huge risk-takers. In a field where there’s no steady paycheck or guarantee of success, you have to have at least some penchant for it.
The problem occurs when entrepreneurs carry their risk-heavy appetite into their investment portfolio. While some degree of risk-taking is necessary for growth, plenty of entrepreneurs have an inclination toward making concentrated bets or attempting to time the market (strategies that have been proven to rarely work).