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Put
Some Distance Between Your Business and Your Retirement
A landmark study found that 91percent of portfolio performance is linked to asset
allocation.¹ What does that have to do with your business? If you were planning
to use your business to help fund your retirement, then your business should be
considered part of your overall retirement portfolio.
There is no guarantee that a
business will continue indefinitely or be worth as much as the owner may expect.
In 2002, there were an estimated 584,000 business closures, roughly 10 percent
of all employer firms and more than the number of business startups that year.²
Building a portfolio outside your
business can help ensure that your retirement is not exposed to the same risks
as your business. Here are three possible ways for business owners to accumulate
retirement assets.
 Contribute
to a Mutual Fund
This type of vehicle pools money from investors who are seeking
a common investment objective and invests in securities such as stocks or bonds.
Mutual funds provide diversification and professional management that would be
difficult for individual investors to achieve on their own.³
Buy an
Annuity
An annuity is an insurance product
that is funded with premiums and that later pays a benefit after a specified
time interval.4 The universe of annuity products is diverse.
Investors can fund an annuity with a lump sum or a series of payments, and can
receive income for a certain time period or even for life. Best of all, any
earnings in an annuity accumulate tax deferred.
Sponsor a
Retirement Plan
When it comes to saving for
retirement, business owners typically have options that other people don't have.
Keogh plans, for example, can be funded only with income from self-employment,
but they may have contribution limits that far exceed other employer-sponsored
retirement plans. Business owners can also set up a tax-deferred plan such as a
401(k) or a SIMPLE plan and participate in it as well.5
Business owners often assume that
their company will be a solid source of retirement income. Building a strong
portfolio outside your business may help insulate your retirement from the risks
that your business faces.
1) Johns Hopkins
University, 2000 (Brinson, Singer, and Beebower, Financial Analysts Journal,
May/June 1991)
2) Small Business Administration, 2003
3) There are fees and expenses associated with investing in mutual funds,
including portfolio management fees and expenses and sales charges. Mutual funds
are sold by prospectus only. Be sure to read the prospectus carefully before
deciding whether to invest.
4) Most annuities have surrender charges that are assessed during the early
years of the contract if the contract owner surrenders the annuity. In addition,
if you surrender or withdraw money from the contract before age 591/2, you may
be subject to a 10 percent federal tax penalty.
5) Distributions from tax-deferred retirement plans are typically taxed as
ordinary income and, if taken prior to reaching age 591/2, may be subject to an
additional 10 percent federal tax penalty.
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