See why you also need a retirement savings plan.

If you’re the owner of one of the nation’s 62 million small businesses, there’s a one-in-three chance that you have no retirement savings plan other than counting on the proceeds from selling the business. For many, this doesn’t work out as hoped. A retirement savings plan can help create a secure financial future.

Risks of counting on a business sale to fund retirement

While many business owners plan on cashing out of their business, the hard truth is that closure rather than continuity is the dominant exit path today, according to the McKinsey Institute for Economic Mobility. The Institute also estimates that by 2035, about 6 million small businesses will be on the market. Among these, about one million will be viable candidates for sale or employee ownership. Some of the remaining 5 million may be transferred to family members, but the majority of small business owners likely won’t see the big payout they’d hoped for.

Owners who do sell their businesses must contend with market factors—such as downturns or a shrinking industry—that can significantly affect how much they walk away with. Additionally, those selling now and in the near future will be competing for buyers along with other Baby Boomer and Gen X owners who are ready to retire.

Small business owners need a retirement savings plan

Another miscalculation many business owners make is over-reliance on Social Security. This benefit is calculated on the account holder’s top 35 years of earnings. Many owners minimize their pay so they can invest in their business, and they’re often surprised when their monthly payments are lower than expected. (Here’s how to view your projected Social Security benefits online.)

Relying solely on Social Security is not a viable plan for the lifestyle many people want in retirement; it’s designed to supplement retirement, not fully fund it.

It’s never too late to start

If you don’t have retirement savings, it’s never too late to start. Business owners have multiple retirement accounts to choose from, including a traditional or Roth IRA, SEP IRA, Solo 401(k) or SIMPLE IRA. Choosing the plan that is best depends on your income, contribution goals and whether you have employees now or plan to hire them later.

If you’re age 50 or over, you’re eligible to make catch-up contributions. Depending on the type of retirement account you choose, you can make the standard maximum contributions plus an extra $1,100 to $8,000 in 2026.

The sooner you start saving, the more time you have to build a financially secure future.

Tax advantages of saving for retirement

In addition to preparing for the future, saving for retirement can help reduce taxable income. Contributions to tax-deferred accounts can lower adjusted gross income, providing tax savings for the tax year the contributions are made.

Consult with a financial or tax professional

Choosing the optimal retirement account and contribution amount is highly dependent on individual factors. Consult with a financial or tax professional for advice on tax and retirement planning.

 

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