What do Retirement Planning and Starting a Business Have in Common? Mistakes can cost you…big time.
If you read articles from magazines like Fast Company or the Economist, you will have come across stories of poor decisions made by startup entrepreneurs that have tanked their lofty endeavors. You might read the story and think “How could someone be so naïve?” but hold your judgment for a moment and ponder your own financial decisions. Planning for retirement is as big a deal as starting a business and generations that are nearing or in retirement seems wrought by the same naiveté as those idealistic startup owners.
So, what do retiring generations have to do with startups? We have identified several business planning mistakes that can easily translate to provide insight to today’s retirees or those nearing retirement. Perhaps calling them mistakes is too harsh, especially since sometimes hindsight is twenty-twenty and you could not have predicted how to avoid certain outcomes, but whether unfortunate outcomes result from ignorance or fate it is fundamental that you are aware of them as you plan for and enter into retirement.
Know Your Market
When endeavoring to start a business doing your market research is critical to understanding the big picture of your business development – strength, weaknesses, opportunities, and threats. Similarly, in retirement, understanding your transition both financially and emotionally can help you build a confident retirement plan.
Answering questions like, “What do I want to do when I retire? What will my monthly living expenses be? Where do I want to live? What is my contingency plan for something unexpected?” can be helpful in navigating the landscape of your new “market”. Market research is based on the macro – the big picture. When you are planning for retirement having a big-picture perspective on what your retirement will look like can help you align your goals with your emotional and financial needs.
Capital is Crucial
It is far too often that businesses start without enough capital and their business plan projects far more profit and far too few expenses than what ends up transpiring in reality. Equally as risky is miscalculating or underestimating your cost of living when you retire and as you age. Additionally, some investors can have unreasonable expectations of how their portfolio will perform over time. If there is a difference between what you anticipate your retirement income to be and what it actually will be then you might find yourself outliving your savings if you do not plan in advance.
Having an investment portfolio that is properly aligned with your risk tolerance, goals and financial needs is the most responsible way to achieve confidence in retirement. Understanding how to optimize your Social Security benefits, minimize your tax obligations and properly allocate your assets in your investment portfolio are critical to making your retirement savings work for you. A proper plan to achieve these objectives can help those nearing or approaching retirement create a secure future, after all, understanding your cash flow and capital is just as important to you as it is to businesses.
Watch Your Spending
Entrepreneurs can sometimes be so eager to fulfill their business idea and vision that they overspend. When people retire sometimes the excitement or simply having too much time on their hands can result in overspending on extravagant vacations or items. While it is tempting in the first few years to postpone budgeting for another year, this type of mentality can have a detrimental effect on your long-term financial security.
Drawing down on your investments to take a trip or make a large purchase with the intention to make up for it by being frugal in the future you might be in for a pretty painful reality check in short order. What if there is a substantial market correction next year? Without that capital to help you weather the storm until the markets inevitably rise again, you could end up bottoming out in the downturn and not be able to recover your losses.
“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” ~ John Quincy Adams
Finding the balance between fulfilling the ideals of an entrepreneurial vision with prudence, patience, and practicality is the recipe for a successful startup. Individuals and couples who are nearing or in retirement should search for the same balance in their approach to financial planning. Starting this new phase of your life is exciting and has the potential to endure successfully for many independent and enjoyable years to come. As with anything else, having a good roadmap to get you from where you are to where you want to be is a critical element of success. For more information on how you can build wealth and plan for retirement contact us for an introductory meeting.