"I'll Just Sell the Business When I'm Ready" 

We've heard some version of this many times. And I want to be clear: it's not a bad plan. Selling a business can be an excellent source of retirement capital.

The problem is when it's the only plan.

Because businesses don't always sell when you want them to. They don't always sell for what you think they're worth. And sometimes — for reasons you can't always predict — they don't sell at all.

The business is an asset — but it's an illiquid one

Here's what I mean by that. If you own a $2 million portfolio, you can sell it tomorrow. The money hits your account in a few days. It's liquid.

If your business is worth $2 million — on paper — converting that to cash requires a buyer, a deal structure, due diligence, legal work, and sometimes years. And the value is often dependent on you still being there to run it.

That's not a reason to avoid building business value. It's a reason to not let it be your only retirement asset.

What retirement actually looks like for most business owners

The business owners we work with who feel the most prepared for retirement usually have a few things in place: personal retirement accounts (IRAs, 401(k)s, sometimes a defined benefit plan) that have been funded independently of the business, investment assets outside the business, and a real succession or exit plan — not just a vague intention to sell someday.

Those three things together can create flexibility. You're not dependent on any single event going exactly right.

The retirement account piece gets missed more than you'd think

Business owners have access to some of the most powerful retirement account options available — SEP-IRAs, Solo 401(k)s, defined benefit plans — that often allow for higher contribution limits than what employees typically have.

But we see a lot of owners who haven't set these up, or who set up a basic plan years ago and never optimized it. That's years of potential tax-advantaged growth sitting on the table.

If your business is your primary plan

That's worth taking a hard look at. Not because you're doing something wrong — but because the earlier you start building outside it, the more options you have later.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.