Have you saved enough to retire?
Make saving a priority to ensure the retirement of your dreams
- Small-business owners, including pharmacy owners, are often so focused on running the business that they don’t create a retirement plan.
- A result is that many small-business owners don’t have adequate retirement savings.
- Creating a retirement plan isn’t hard or expensive. It requires making it a priority, getting some expert advice on the best option and contributing regularly.
- With planning and discipline, every pharmacy owner can build a good retirement.
- And, pharmacy owners may want to consider a retirement plan for all employees, which is an attractive benefit that helps employees build their own nest eggs.
Most pharmacy owners have financial literacy and a financial strategy for running the business, but do you have a financial strategy for your retirement?
Owners of independent pharmacies are like other small-business owners: passionate about the business, focused on serving customers, and consumed by day-to-day operations. This results in working long hours, juggling multiple projects and wearing many different hats.
But there is one trait of small-business owners that pharmacy owners will want to avoid: neglecting to save for retirement. Consider these startling statistics about small-business owners:
- 73% worry about maintaining their lifestyle in retirement.1
- 60% are not saving the money they need for retirement.2
- 40% don’t have any retirement savings at all.3
Financial advisors offer several reasons why small-business owners often fail to save for retirement. Among them are:
- Owners are focused on running the business. While business owners may think about retiring in the future, the short-term focus is on daily operations. As one financial advisor said, “A lot of time [owners] get caught up in work.” Another advisor acknowledged, “It is often difficult to help individuals plan for the future if they are too busy and distracted maintaining their day-to-day.”
- Owners don’t think they can afford it. David Krasnow of Pension Advisors in Cleveland, Ohio, has heard small-business owners say they can’t afford to save. This could be the case for independent pharmacies, where the average net income for a community pharmacy is slightly more than $120,000 (though it goes up to about $350,000 for the top 25% of pharmacies).4 Krasnow is concerned that small-business owners put off saving, which affects when they will be able to retire and the quality of retirement.
- Owners bet (solely) on their business. Neil Smith of Ascensus, a financial advising company in Dresher, Pennsylvania, said, “[Small-business owners] make the conclusion that the business will be their retirement fund.”5 As a result, extra cash is often reinvested in the business instead of allocated to retirement. This approach is viewed by financial advisors with concern. Owning a small business is already risky; linking retirement to the business adds more risk. Also, a business’s value can fluctuate and it can be difficult to get liquidity when desired. Having a separate retirement plan decreases the risk.
- Owners are intimidated at setting up a retirement plan. Krasnow believes many small-business owners are intimidated by the process and perceived cost of establishing a retirement plan. However, with multiple options available for small-business owners, setting and administering a retirement plan isn’t hard or expensive.
Develop and execute a retirement plan
Financial advisors are in agreement on key steps pharmacy owners and other small businesses can take to financially prepare for retirement.
- Have a strategy and a goal. Just as you do for your business, it is important to define a financial goal and have a clear personal retirement plan. Pharmacy owners may develop business plans but may not take the time for retirement planning. This doesn’t take a great deal of time but does require determining how much you want to save by what date. It all starts with a plan based on personal goals.
- Establish a retirement plan. The good news for small-business owners, says Krasnow, is there are several different options available, with different features and contribution limits. Fidelity suggests three common plans that small-business owners might consider:
- A Simplified Employee Pension Plan (SEP IRA)
- A Savings Incentive Match Plan for Employees (SIMPLE IRA)
- An Individual (Solo) 401(k) Plan
Each of these plans allows owners to save thousands (or tens of thousands) of dollars per year, tax free. In addition to saving for retirement, Krasnow says, “A retirement plan is the number one vehicle for small-business owners to decrease their taxes.”
- Make regular contributions. Financial advisors suggest contributing to your retirement account regularly, like each month or each quarter. Build it into your budget and make it a habit. Most payroll services can do this automatically.
- Review your retirement plan periodically. In addition to regularly checking to make sure you are dealing with administrative and compliance issues, it makes sense to regularly revisit your retirement account. This includes looking at the asset allocation, the types of investments being made, and the overall goal and strategy.
- Consider engaging a professional financial advisor. There are advisors who specialize in helping small-business owners plan for retirement. Advisors will ask about your goals, will provide advice on the range of plan options and the best one for you, and can provide guidance on specific investment options. Advisors can also help make sure you get the full tax benefits and are complying with all applicable laws, and can help minimize all costs and administrative issues. Just as you guide patients in their treatments to help them be as healthy as possible, a good financial advisor can help you maximize your financial health.
If you don’t have a retirement plan in place, it’s not too late. Make it a priority, meet with an advisor to understand the options and choose the best plan for your situation. If you have a retirement plan, be sure to contribute regularly and review it periodically — with the input of an expert — to ensure you are getting the greatest possible tax and financial benefits.
Thinking about employees
NCPA data shows that community pharmacies have an average of about 10 full-time employees, including non-owner pharmacists, technicians and other positions. A retirement plan is a valued employee benefit that gives employees the ability to save for their own retirement. It can differentiate your pharmacy as an employer — as only 14% of small businesses offer a retirement plan.6 Having a retirement plan is a valuable tool in attracting employees and retaining them.
Different types of retirement plans have different contribution limits, eligibility criteria, costs and rules, which a financial advisor specializing in retirement plans can help you understand. With some types of retirement plans, employers can match employee contributions, but are not obligated to do so. The costs associated with a retirement plan for employees don’t have to be high, and the benefits of having such a plan for employees can be enormous.
1 “Retirement: Why Small-Business Owners Don’t Save,” USA Today, February 24, 2015. LINK
3 “40 Percent of Small-Business Owners Don’t Have Retirement Savings,” American Express Open Forum, on website 1/11/17. LINK
4 NCPA Digest, 2014.
5 “Retirement: Why Small-Business Owners Don’t Save,” USA Today, February 24, 2015. LINK
6 “Why Small Businesses Don’t Offer Retirement Plans,” US News & World Report, August 12, 2013. LINK