4 investment opportunities for small business owners about to retire
If you’re a small business owner, you’re probably used to constantly thinking about the sales and profits of your business. Both are essential as they are the lifeblood of your business. However, there’s one decision you may have put on the back burner – and that’s your retirement.
As a small business owner, retirement planning is entirely your responsibility. Your retirement savings plan considerations are critical. Here are four investment opportunities for when you’re about to retire.
An annuity refers to a contract distributed by an insurance company or financial institution. You pay a sum of money which is redistributed by regular payments. Annuities are useful because they guarantee a set stream of income for the rest of your life or a certain period of time.
The accumulation phase is the start of an annuity, where you fund the contract. Then you can start collecting payments at a later date. Annuities work well for retired small business owners because you will have stability.
Benefits of annuities:
- Stable retirement income.
- Flexibility in how you save and receive money in retirement.
- Beneficiaries can receive payments after their death.
- Liquidity may be limited.
- Warranties are subject to insurance company claims.
- Withdrawals before age 59 may be subject to a 10% penalty tax.
2. Invest in a yacht
You may think that an investment in a boat might not be the brightest idea. After all, some skeptics say that investing in a boat is essentially throwing money away. This might be partly true since it depreciates as soon as you buy one – and you repairs need to be made overtime. However, investing in a boat can help lower your retirement tax bill if you consider it a second home.
You can access a mortgage interest deduction if you own a qualifying primary and secondary home. This deduction makes owning a boat attractive – and some manufacturers will go so far as to design boats based on mortgage interest deduction standards.
Of course, you don’t have to live in your boat full time for the IRS to consider it a qualifying home. the finance rates will depend on your credit score and other factors. However, you can use your interest deduction to cover your yacht’s secured debt.
3. Property rental
Becoming a rental property owner can be a rewarding way to earn passive income. If you have some experience in the real estate industry, this might be the best opportunity to utilize your expertise. To go this route, you’ll need significant up-front capital to cover maintenance costs and vacations while you prepare it for rental. However, you get rental income that keeps coming month after month once it’s up and running. If you don’t have money for a large down payment, you can consider using funds from your IRA (Individual Retirement Account).
One of the benefits of owning a rental property is to increase the rent each year to keep up with or exceed inflation. During this time, your monthly mortgage will remain the same. In addition, you can benefit from tax advantages by claim capital cost allowance on your tax return.
4. Total return approach
Total return investing is where you buy assets to capture capital gains, interest and dividends. This strategy ensures that your portfolio generates interest and dividend income so that you can retire. However, investing and an income plan may not be the most realistic if they focus only on return – you could be cut off from other sources of cash flow in your portfolio.
If you want to build a portfolio to provide liquidity and growth potential, consider all of your portfolios, such as cash balances and asset sales, to receive capital gains. This strategy is called a total return approach.
A core retirement portfolio invests in a diversified mix of stocks, bonds and cash investments. “Total” return means that you average the annual rate of return – income and appreciation – over a period of ten to twenty years. So, rather than focusing on annual rates of return, you’re aiming for a total return that meets or exceeds the drawdown rate.
A total return approach can meet your immediate cash flow needs while continuing to save for future growth. The only downside to this strategy is that there is no guarantee that the funds will last through your retirement. In addition, the value of your return may vary each year.
Are you ready to start investing for your retirement?
As a small business owner, you have many great options to help you save for your retirement. Take a step back from your small business and start investing in your retirement strategy today. A finance professional can help you better understand these options. This way, you can determine which one is best for you.