Running a business is demanding. This is especially true for small business owners who have to wear multiple hats so the door stays open, the lights stay on, and workers get paid on time. Many business owners are so focused on these things that retirement feels like a distant thought (big mistake).
But here’s the thing: the years go so fast, and almost in the blink of an eye, you’re ready to hand over the baton. Unfortunately, without adequate preparation, including proper financial planning, even successful entrepreneurs can find themselves broke when it’s time to step back.
This, incidentally, happens far more often than you can imagine. Studies suggest that as many as 73% of small business owners may not have enough saved up for a comfortable retirement. That means, only 27% are confident about their post-retirement future.
The good news? You can absolutely land in that 27%. By learning from common mistakes and making a few smart moves, you can have the kind of retirement you’ve always pictured.
Let’s take a look at what those mistakes are and, more importantly, how to avoid them.
1. Delaying Retirement Planning
Let’s start with the most common mistake of them all, delaying the start of retirement planning.
Many business owners make this mistake because maybe cash was tight in the early years, they’re currently focused on growing the business, or they simply think they’ve got enough time to figure things out later. The problem is that ‘later’ comes sooner than expected.
Let’s get one thing clear: retirement planning is a lot more than just setting money aside monthly for retirement. Don’t get me wrong, saving is a great idea, and will help you benefit from compound interest.
Let’s do the math:
If you put aside $500 every month into an account earning 4.35% APY (Bankrate’s best high-yield savings interest rate for September 2025), in 20 years, you’d have roughly $190,000. That’s a decent figure, yes, but hardly enough to retire comfortably.
True retirement planning, however, is a holistic strategy that defines:
- Your desired retirement lifestyle and timeline.
- A realistic estimate of spending expenses, including living and healthcare costs.
- How to maximize small business owners’ retirement plans so that you don’t end up with just $190,000.
- An actionable plan to convert your business into retirement capital.
Consistent saving is good, yes, but without this comprehensive plan, even consistent savers risk entering retirement unprepared.
2. Banking on Selling the Business
Another mistake many business owners make is thinking that because they have a profitable company, they’re set for life. The plan is usually to sell off the company for huge sums and fly away into the sunset. Unfortunately, this is not always easy to do.
According to The Exit Planning Institute’s State Of Owner Readiness Research, just about 20 to 30% of businesses that go under the hammer end up being sold. That leaves the majority of owners unable to cash out as planned, with little to show for years of hard work.
It’s risky, see? You may not find a buyer willing to pay your asking price when it’s time to exit, possibly derailing all your retirement plans.
Even if you intend to sell eventually, don’t hang all your hopes here. Instead, think about setting up retirement plans for small business owners early enough, whether it’s a SEP IRA, a SIMPLE IRA, or a Solo 401(k). This way, even if the market doesn’t favor the value you put on your company, you’ll have a cushion.
3. Ignoring Tax-Advantaged Retirement Accounts
It’s surprising how many SMEs overlook retirement accounts that are tailored just for them. Employees typically contribute to 401(k) plans, 403(b) plans, or 457 plans, but many sole proprietors don’t know that they have plans that are equally as powerful.
These plans — SEP IRA, a SIMPLE IRA, or a Solo 401(k) — tend to come with major tax benefits. Take the SEP IRA, for example. According to the IRS, you can contribute as much as 25% of your net earnings here as a small business owner or self-employed individual up to $69,000 for 2024.
And guess what?
- The contributions are tax-deductible, and investment earnings grow tax-deferred.
- You choose each year whether to contribute and how much.
- You don’t need to file with the government annually.
- You may qualify for a tax credit of up to $500 per year for the first three years.
As you can see, overlooking these small business owners’ retirement accounts is leaving money on the table. They’re there to give you, as a small business owner, the same retirement security as corporate employees.
4. No Business Succession Plan
Do you know that many small business owners have no plan for their business when they retire?
A 2024 Gallup study revealed that a huge 40% of small business owners, mainly those without employees, have no idea what to do with their business when they retire. This number amounts to a huge 12,000,000 SMEs in the USA.
Even if you don’t have employees, a proper succession plan will protect your business. Whether you’re handing over to a family member, grooming a partner to take over, or selling, a properly prepared and well-documented succession plan will ensure a smooth transition.
5. Not Working With a Finance Professional
As we’ve already established, small business owners tend to wear multiple hats — bookkeeper, HR, customer support, and maybe even web designer. But here’s the thing: when it comes to retirement and financial planning, DIY can be expensive.
A financial professional (fiduciary) can spot things you’ll miss. This expert will help you with a well-thought-out and custom retirement plan, and offer advice on everything from investment diversification to achieving long-term financial security.
Even if you have a background in finance, you’re already busy enough running your business. It helps to have an expert in your corner looking out for your best interests. And fear not, according to WealthClarity, fiduciaries are by definition, legally bound to put their clients first. Any strategy they suggest is designed to give you full and confident control of your financial future.
Don’t Leave Your Retirement to Chance
As a small business owner, never make the mistake of leaving your retirement options to chance, and you can start on the right track by avoiding the pitfalls discussed in this article.
Don’t leave things too late, leverage tax-advantaged retirement plans, and make sure you have the right professional in your corner. Do all these, and you can look forward to the day when your “new office” is a fishing boat, or simply a porch swing at home, without financial stress hanging over your head.
