At least it’s the question for many baby boomers who are at or near normal retirement age. Millions of baby boomer business owners are facing this question. COVID-19 has exacerbated making this decision, with Pew Research Center finding that the pace of retirement has accelerated. Should you retire? Can you retire? Will you retire?
Financial considerations
How are your finances? Many baby boomer business owners may be able to afford a comfortable retirement. They have spent a lifetime building resources:
- The business. It can be sold to generate a large amount of revenue. To get a rough idea of what the business is worth, use a free business valuation calculator, such as BizEx or CalcXML. Tax considerations impact the after-tax results of a sale. For example, deferral of tax on capital gains can be achieved by investing some/all of the proceeds in a Qualified Opportunity Fund. How much the sale of a business will bring after tax obviously depends on the situation.
- Savings. Savings in a qualified retirement plan may be substantial. Many have maximized contributions and time, compounding, and investment returns have seen plan holdings grow. Owners need to factor in the tax cost from required minimum distribution (RMD) rules. RMDs may mean considerable required withdrawals and a big tax bill whether or not retired. While employees may postpone RMDs from 401(k)s until retirement, this rule does not apply to anyone owning more than 5% of the business.
- Social Security benefits. For those who postponed the receipt of benefits past normal retirement age, they’ll receive a larger monthly benefit for the rest of their lives. For those who are weighing the decision about when to commence benefits, consider delayed retirement credits.
Project what you need to have a comfortable retirement. Use a retirement calculator from NerdWallet or SmartAsset.
Of course, for some baby boomer business owners, financial security may not be present. Their businesses have experienced difficulties, they haven’t been able to save as much as they’d have liked, or they may have experienced other financial difficulties over the years due to health or other reasons that have sapped resources. For these boomers, retirement may not be as attractive from a financial perspective.
Personal considerations
Where finances don’t dictate a decision, personal considerations come into play. Some key factors to consider:
- How you feel about leaving your business. For many business owners, their business is their baby and it’s hard to sever the ties. Of course, retirement can be accomplished in stages…cutting back hours and delegating more responsibilities.
- What you plan to do with your time. Running a business continually challenges the mind and is an enjoyable daily challenge for many owners. For others, there may be activities delayed during business years that they want to pursue in retirement.
- How is your health? With aging comes more health issues for many people. Despite desires to continue running a business, an owner may not be physically up to par. Still others remain physically capable into their 70s, 80s, and even 90s.
- How retirement may impact personal relationships. When a business owner has a spouse or significant other, retirement can challenge the relationship. Are both parties on the same page with respect to retirement?
The Social Security Administration has a scholarly research article on the behavioral and psychological aspects of the retirement decision.
Final thought
Small business owners who are baby boomers may agree or disagree with Ernest Hemingway, who said “retirement is the ugliest word in the language.”
Small business owners who are millennials or in other younger generations may not be thinking of retirement. A word to the wise…the years go by quickly and you too may face the question—to retire or not to retire—sooner than you think!
