Retirement Planning For Business Owners

A client of mine — call him Tom, owns a 14-person HVAC company in the South Bay — sat down across from me last fall and asked the question I hear more than any other.

"On paper, the business is worth maybe three million dollars. In my retirement account, I have about eighty-six thousand. So am I a multimillionaire, or am I broke?"

The honest answer is both, at the same time, in a way that's incredibly common and incredibly under-addressed.

If you own a small business and you're in your 40s, 50s, or 60s, retirement is almost certainly your #1 long-term financial worry. Surveys consistently rank "Will I have enough?" as the biggest financial concern for owners in this stage of life. And yet retirement planning for small business owners is wildly different from what an employee with a 401(k) deals with.

Here are the five questions I get asked the most:

1. Am I Saving Enough?

This is the question that keeps people up at night. The honest answer for most business owners is, probably not in the way you think — but that's not because you're behind. It's because you've been reinvesting in something better.

For years, you've poured cash back into the business. Equipment. Hires. Inventory. That money built equity, just in a place a brokerage statement doesn't show. The problem is the day you stop working, the business stops sending you a paycheck — and you need to bridge that gap with something liquid.

The fix is rarely "save more." It's "save differently." A Solo 401(k) lets a solopreneur stash away tens of thousands per year and immediately reduces your tax bill. A SEP-IRA is simpler but less generous at high incomes. If you have employees, a Safe Harbor 401(k) can give you owner-level contributions while keeping the plan compliant. Most owners I meet have access to one of these and aren't using it.

2. When Can I Actually Retire?

The wrong way to answer this is to pick an age and reverse-engineer a plan. The right way is to figure out your annual lifestyle cost after tax, multiply by 25–30 for a rough nest egg target, and then ask: where does that money come from?

For a business owner, the answer almost always involves two pots — your retirement accounts and the eventual sale or wind-down of the business. That second pot is where the most money usually gets left on the table.

A clear retirement date isn't a guess. It's the output of a calculation that pulls together savings, projected business value, Social Security, healthcare, and tax picture. When clients see those numbers laid out for the first time, the answer is usually sooner than you think, but only if you make a few moves now.

3. Will I Run Out of Money in Retirement?

This is the deeper version of question one — and it's the one most owners are too superstitious to ask out loud.

Running out of money in retirement happens for three predictable reasons: starting too late, taking on too much risk too close to the finish line, or never building reliable monthly income to replace the paycheck you used to write yourself.

The fix is to build a retirement income plan, not just a pile of money. That means a mix of tax-deferred accounts (401(k), IRA), tax-free buckets (Roth and HSAs), and taxable savings — each pulled from in a specific order to keep your tax bill as low as legally possible for the next thirty years. Done right, this is worth six figures in lifetime tax savings.

4. Can I Count on Social Security?

The short answer: yes, but probably not as much as you think.

For business owners who took a small W-2 salary for years to keep payroll taxes down, the Social Security benefit at retirement is often smaller than expected — because Social Security is calculated on your reported wages, not on your business profits. That's a tradeoff most owners would make again, but it has to be planned for.

The Trust Fund headlines are real but not as catastrophic as they sound. The current estimate is that without legislative changes, benefits would be reduced by roughly 20–25% in the mid-2030s — a real planning input, not a reason to ignore the program.

5. What About Healthcare Costs?

If you retire before 65, you're staring down five to fifteen years of paying for health insurance on your own dime — and post-2025, with the enhanced ACA subsidies expired, marketplace premiums are up roughly 26% on average. A healthy 60-year-old couple can easily spend $25,000 to $40,000 a year on coverage before Medicare kicks in.

The right plan addresses this directly: a strategy for how to bridge to Medicare, a Health Savings Account funded for years before retirement (the only triple-tax-free account in the code), and a clear-eyed Medicare plan once you're eligible. None of this is exotic. All of it is rarely done.

Exit Planning: Your Business Is Probably Your Biggest Asset

Here's the section nobody writes about because it's uncomfortable: most small business owners have 70–90% of their net worth tied up in the business itself. That's a fragile retirement plan.

Exit planning is the work of turning that paper value into actual retirement income. It involves answering questions most owners never sit down with: Who could buy this? Could a key employee? A competitor? A private equity rollup? Could the business run without me long enough to be sold for what it's actually worth?

A well-prepared business sells for two to five times what an unprepared one sells for. The difference between those two outcomes is rarely about luck — it's clean financials, documented systems, a key person who isn't you, and a multi-year tax strategy that doesn't hand 30%+ of the sale price to the IRS.

If you plan to retire on the proceeds of your business, exit planning isn't optional. It is the plan.

How I Can Help

I'm a fiduciary financial advisor based in Hermosa Beach, California, working specifically with solopreneurs and small business owners. I charge a flat fee, not a percentage of your money. I'll walk you through where you actually stand on each of these five questions, and I'll show you — in real numbers — what your retirement looks like.

If you would like to discuss retirement planning further, click Book A Meeting.

FAQ: Retirement Planning for Business Owners

1. How much should a small business owner have saved for retirement?

There's no single number that applies to every owner — it depends on your target retirement lifestyle, not a generic savings rule. A useful starting point: calculate your annual after-tax living expenses in retirement and multiply by 25–30 to estimate your total nest egg target. For business owners, this figure typically needs to be pulled from two sources: retirement accounts and the eventual value of the business itself, since most owners have a majority of their net worth tied up in the company rather than in a 401(k) or IRA.

2. What is the best retirement plan for a small business owner?

It depends on whether you have employees. A Solo 401(k) works well for a business owner with no full-time employees and allows the highest contribution limits. A SEP-IRA is simpler to administer but generally allows smaller contributions at the same income level. A Safe Harbor 401(k) is often the best fit once you have employees, since it lets the owner contribute at a high level while automatically satisfying IRS nondiscrimination testing requirements.

3. Can I use my business as my retirement plan?

Many owners do, but it's a riskier strategy than it sounds. It's common for 70–90% of a small business owner's net worth to be tied up in the business itself, which makes retirement highly dependent on a single, illiquid asset. A more resilient plan treats the eventual sale or transition of the business as one part of retirement income — alongside retirement accounts, Social Security, and other savings — rather than the entire plan.

4. How does Social Security work for self-employed business owners?

Social Security benefits are calculated based on your reported wages, not your business's total profits. Many owners who minimize their W-2 salary to reduce payroll taxes end up with a smaller Social Security benefit than expected in retirement. This is often still the right short-term tax decision, but it needs to be factored into long-term retirement income planning rather than discovered after the fact.

5. How do I plan for healthcare costs if I retire before age 65?

If you retire before Medicare eligibility at 65, you'll need to cover health insurance independently — often for five to fifteen years. A healthy 60-year-old couple can spend $25,000 to $40,000 or more per year on marketplace coverage. A Health Savings Account (HSA), funded consistently in the years leading up to retirement, is one of the most effective tools here, since it offers tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

6. What is exit planning, and why does it matter for retirement?

Exit planning is the process of preparing a business to be sold or transitioned for its full value — clean financial records, documented systems and processes, and reduced dependency on the owner personally. A well-prepared business can sell for two to five times more than an unprepared one facing the same market conditions. If a business sale is part of your retirement funding plan, exit planning isn't optional — it directly determines how much retirement income that sale actually produces.

7. When should a business owner start retirement planning?

Ideally, well before the "I'm ready to retire" conversation — because several of the biggest levers (maximizing tax-advantaged retirement contributions, building HSA balances, and preparing the business for a future sale) take years to fully pay off. Owners in their 40s and 50s have the most flexibility to make structural changes; owners closer to retirement have fewer options but still benefit significantly from a coordinated plan.

8. Will I run out of money in retirement?

Running out of money in retirement typically comes down to three preventable causes: starting to save too late, taking on too much investment risk too close to retirement, or never converting savings into a reliable monthly income stream. A sound retirement income plan draws from tax-deferred accounts (401(k), IRA), tax-free accounts (Roth, HSA), and taxable savings in a specific, deliberate order — which can meaningfully reduce lifetime tax liability compared to withdrawing without a strategy.

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