It's important to plan for retirement.
From deciding on a retirement plan to outlining your eventual exit, there are several key steps that go into planning for future retirement. — PeopleImages/Getty Images

With average life expectancy and cost of living both on the rise, the term "retirement savings" often makes people nervous. According to Fidelity, Americans need to save 15% of their annual pre-tax income throughout their career (from age 25 to 67) to live comfortably and cover anticipated increased medical expenses during retirement — which could end up being a decade or two longer than you expect, depending on your retirement age and lifestyle.

This level of savings may seem impossible for small business owners, who are typically focused on covering basic business expenses on top of their own personal living costs. However, by taking steps to prepare today, business owners can ensure financial stability during their golden years.

Below are four things every business owner should do now to stay on track for their eventual retirement.

Understand all your options

Individual Retirement Accounts (IRA), such as Traditional, Roth, SEP and SIMPLE IRAs, and Solo 401(k) plans are the norm for retirement savings options among most small business owners. However, there are numerous other ways to invest your money and maximize your returns.

Some alternatives and supplements to IRAs and 401(k) plans include:

  • Brokerage accounts (stocks, bonds, mutual funds, money markets, certificates of deposit, etc.).
  • Real estate investments.
  • Investing in a small business.
  • Health savings accounts (HSAs).

Beyond the standard savings and investment vehicles, there are also products like annuities and life insurance policies, which can be used to provide income in retirement. Paul Miller, CPA and founder of Miller & Company, LLP, cautions business owners to do their research and consult with a financial adviser before exploring these options.

"While these products may work, they come with a lot of fees and can be actually be financially detrimental before they become financially beneficial," he said.

No matter which strategies you choose, it's important to start saving as early as possible so you can earn interest on your assets and receive the benefit of compounding, said Katie Prentke English, co-founder and CMO at Harness Wealth.

[Read: How to Offer an Employee Retirement Plan]

Determine how much you need to save each year to meet your goals

Once you know where and how you want to invest your money, you need to figure out the ideal amount to set aside for your future. Prentke English advised small business owners to start by mapping out when they want to retire and the amount of money they’ll need at that time to cover their expenses.

"From there, they need to work backwards from their current retirement savings to determine what they need to contribute (assuming a standard market performance) to achieve that level at the time they want to retire," she said.

Prentke English recommended revisiting your savings plan and adjusting annually as your business profits and income change.

Americans need to save 15% of their annual pre-tax income throughout their career to live comfortably.

Create an exit plan for your business

According to Prentke English, your business itself can be a source of retirement value if you plan for an ownership transition via a sale, outside investment or employee equity purchase. To this end, Jesse Johnstone, president of Fibrenew, said small business owners should get an exit strategy (and a backup plan) down on paper as soon as possible, regardless of how far off you may be from selling.

"The key is to be prepared and ready for your exit," Johnstone told CO—. "Ideally the plan is to sell the business to someone who can continue it, or merge … with someone who can carry it forward."

As your "exit date" approaches, Johnstone advised getting your financial records from the previous three to five years in order for a potential partner or investor. You might also consider working with a business broker who can help negotiate the sale of your business.

"Websites like are good places to research to get a ballpark estimate for how much a business in your industry is worth," added Johnstone.

Hire a trusted financial adviser

Small business owners often have more complex retirement planning needs than the average working professional. If you don't have the time or knowledge to explore your options on your own, a financial adviser can be helpful in mapping out a retirement plan, said Prentke English.

"Working with tax, financial and business advisers years before you would potentially want to retire will allow you to maximize long-term value," she added.

Advisers can offer detailed insights and information about the steps necessary to achieve your retirement savings goals and provide options you may not have known about or considered.

When seeking an adviser, make sure you hire someone you can trust (Miller recommends asking your CPA for a referral). You should also only hire a fiduciary — someone who is legally and ethically bound to act in your best interest — as your adviser.

[Read: How to Find the Right Accounting Firm for Your Business]

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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