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How to save for retirement -- and run a business

For many entrepreneurs and small-business owners, planning for retirement may seem like it conflicts with running a business. As a result, many find themselves without any savings when they reach retirement age. Then, if they can't sell their business for a hefty sum, they have little choice but to keep running it into their old age.

CBS MoneyWatch Executive Editor Amey Stone spoke recently with Ameriprise financial advisor Tony Pizzo, of Appleton, Wis., about the steps a small-business owner can take to start saving for retirement. He said the key for entrepreneurs is just to get started. Their interview is excerpted below:

Amey Stone: What's it like trying to get entrepreneurs to plan for retirement?

Self-employed cobbler cannot walk toward retirement after struggling to save
Tony Pizzo: You have to look first at what stage their business is in. It really matters less how old they are

Let's start with people who are in the beginning stages of running their business. Often they don't have the cash flow at that point of time to start saving for retirement. They are probably just spending a lot of time, energy and money on just building the business.

If I try to talk to them about retirement, they will either say that they haven't thought about retirement since it is so far off, or they will ask me, "Isn't my business my retirement asset?" If I talk about starting a retirement plan for employees at their business, they may not want to because of they think the costs are too high.

AS: So, how do you turn that around?

TP: What we try to do for young companies is just instill a discipline where they start to save. Maybe we talk about building up savings as a backup plan for slow times. We want to teach them about the importance of diversifying and being able to keep operating if they hit a slow point in the business cycle.

That discipline of saving something -- not just buying another machine or truck for the business -- that's important to do.

Then I try to get them to understand the value of their employees. They recognize that there is an expense in turnover. I show them that offering a retirement plan can help them retain people. I help them understand the true cost, and since it can be tax deductible, it isn't as expensive as they may think.

AS: So, do you often get them to create a retirement plan for themselves and their employees at the same time?

TP: If at all possible, we do that. I have to work with their other advisors (accountants, insurance agents, attorneys) to make sure they have the cash flow. I don't want to put it in place and then find they can't do it any longer.

AS: What kind of plan would you recommend?

Tony Pizzo
TP: A simple individual retirement account with a 2 percent or 3 percent match might be good for some small companies. Once they are bigger, a 401(k) starts to make sense. If the owner is older, a defined-benefit plan may makes sense. There are a lot of options.

AS: Let's get back to people who are in the later stages of running a business.

TP: When you're dealing with a more mature business owner and a more mature business, you really start talking about succession planning and what their exit strategy might be. Again, I have to talk to their advisors, and that might include an estate plan.

If they are selling, they may be able to structure payments from a buyout so they have ongoing income, which can reduce stress.

I also need to get them to start preparing for retirement -- not just financially -- but for that lifestyle. They need to think about what they would like their retirement to be like. It's hard to get them to do that.

I try to make sure they have outside interests, hobbies, things they want to do. It shouldn't just be about leaving their company. They should have something they are going to.

Finally, I need to make sure they get family buy-in for what will happen.

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