8 Retirement Moves Every Founder Should Consider

It’s very easy to let retirement planning drift into some far-off dream when one operates a business. As a founder, you’ve spent years focusing on growth, problem-solving, and keeping your company afloat.

But at some point, you do have to consider what happens when you step away. Your plan should assure you that all the hard work you put in results in a comfortable, secure future.

Retirement Planning To Consider 

Here are eight retirement planning every founder should know about so that you can approach this chapter with confidence.

1. Choosing the Right Retirement Planning: Solo 401(k) vs. SEP IRA

When it comes to retirement savings, the type of plan you open does make a difference. Both solo 401(k)s and SEP IRAs are popular options for business owners, though they serve slightly different purposes.

If high contribution limits and flexibility are needed, a Solo 401(k) is the way to go. You can contribute as both an employer and an employee, thereby saving more aggressively. 

On the other hand, setting up a SEP IRA is much easier and works best in a company with a number of employees, since the contributions need to be proportional.

Consider your business’s structure, cash flow, and hiring plans before deciding on any path. Seek the advice of a financial advisor in order to get the best out of either option if you’re in doubt.

2. Add Cash Balance Plan For Accelerated Contributions

If you’re earning a high income and wish to save much more than what has been generally allowed, then a cash balance plan may be it. It’s a type of pension that lets you make large, tax-deferred contributions based on your age and income.

This kind of plan is most valuable for founders when they are in their peak earning years. Hundreds of thousands can be stashed away each year, changing the game for late-stage retirement planning.

But there is a catch: cash balance plans are more complex and involve administrative costs. Be sure to work with an actuary or a specialist in retirement planning to ensure it works for your situation.

3. Time Strategic Roth Conversions

Founders often hold substantial wealth in pre-tax retirement accounts, which can become a large tax burden later. A Roth conversion is the process by which money is transferred from a traditional account into a Roth IRA, in which future growth and withdrawals are tax-free.

Timing is everything: Conversions work much better in low-income years, such as after selling a business or during a sabbatical. By strategically planning conversions over time, you can spread out the tax impact and minimize long-term liabilities.

Consider pairing conversions with other strategies, like charitable donations or tax deductions, to further offset taxes. This is a strategic move, but if done correctly, it can greatly increase one’s financial flexibility in retirement planning.

4. Structure A Partial Exit With Seller Financing

Selling your business does not have to be an all-or-nothing decision. Partial exits, in particular those using seller financing, enable you to step back gradually while creating an income stream. You sell part of your company and provide financing to the buyer, getting paid over time.

This can help minimize the tax hit from an outright sale of your business, while providing you with predictable income in retirement. It’s also a way to stay involved without carrying the full weight of operations.

Make sure you work with legal and financial professionals in structuring the deal appropriately. A poorly executed agreement can expose you to unnecessary risks.

5. Optimize Asset Location For Tax Efficiency

Where you hold your investments is as important as what you invest in. Asset location is one technique of placing different kinds of investments in accounts that minimize taxes. For example, tax-inefficient assets, such as bonds, are typically held better in a tax-deferred account, while stocks work well in either taxable or Roth accounts.

Founders typically balance a combination of business equity, retirement accounts, and personal investments. Matching those assets with their ideal “locations” will save you a tremendous amount of money in taxes over time.

A financial planner or a CPA can help you map out the best places for your portfolio. It’s a small tweak that, over time, pays big dividends.

6. Build Diversified, Founder-Friendly Income Streams

Reliance on one’s savings or a single source of income in retirement planning is quite risky. But as a founder, you possess a key advantage: resourcefulness and creativity. You might want to mobilize these skills to build multiple, dependable income streams that mirror your interests.

You can opt for passive options like rental property, royalties, or stocks that pay dividend returns. Alternatively, you may opt for partial activity with consulting, public speaking, and board memberships.

The goal is to have multiple sources of income so you are not overly dependent on any one source. The thing about diversification is that, aside from reducing financial risk, it keeps life more interesting in retirement.

7. Reinvest Liquidity With Longevity-Aligned Products

You may well be in charge of a sizeable cash position, whether you have sold your business or stepped back. What you do next will be an important factor, especially if you are likely to live well into your 80s or 90s.

All things considered, going conservative blind can be counterproductive. A far better balance of protection and long-term growth comes from longevity-aligned strategies such as deferred income annuities or structured income portfolios.

If any of those options resonates with you, then Abacus has a good explainer on the lifespan-based financial solutions. This technology-led asset manager focuses on matching investment timelines with real-world longevity rather than some statistical average for retirement age.

8. Create And Document A Succession And Estate Plan

Retirement is also about the legacy that one has built through values and hard work. A written succession/estate plan ascertains that all business and personal assets are disposed of as intended.

A succession plan defines who will take over the business and how the transition will occur. An estate plan, on the other hand, describes what happens to wealth accumulated in terms of property and investments. It helps the family avoid potential legal tussles or tax complications.

Don’t wait to start this process. The earlier you document these plans, the more flexibility you’ll have to refine them as circumstances change.

Retirement Isn’t an Exit; It’s a Transition

Retirement planning for founders should be a time to find new avenues of growth, contribution, and enjoyment. The key is to plan ahead, so your transition feels intentional, not rushed.

So, take the time to map out what is next. Maybe that is mentoring, maybe that is starting a passion project, maybe that is spending more time with family. Whatever it is, proper preparation makes it possible.