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Business owners can sometimes get so caught up in the day-to-day management of their businesses that they find no time to step back and make broad, long-term plans for their retirement years. This article discusses the basic issues that must be addressed when planning for financial security in retirement.

First of all, there is the question of how long you are likely to live. Everyone knows that males and females are living well into their 70s and 80s on average, and many people are living much longer than that. So, in planning for retirement, it is wise and sensible to assume you will live for a considerable amount of time after you have retired.

You should aim to accumulate a decent pile of savings for your retirement, but you should not go to extremes - there is no point in being the richest person in the cemetery.

Inflation
Inflation is the increase in consumer prices over time, and it can do horrendous damage to investments that do not grow. For example, if the average family grocery or electricity bill (or any other type of bill) inflates at three percent per annum, that bill will double in less than 25 years. If your wealth is held in a form where the capital does not grow (for example bank deposits), your wealth will decline severely in value over time – in 25 years $100,000 will buy only half what it buys today, if prices rise at three percent per annum.

The family home
What capital can be liberated through trading down or selling the family home when you retire? Many people hold the view that their family home is a form of investment or saving, but unfortunately when they first enter retirement people do not often wish to trade down or move out of their home area. You can do either or both in order to liberate capital, but people become accustomed to a certain style of living and to having their friends near them. Clearly, a preferable solution is to have accumulated sufficient savings in some other form/s, so that neither trading down, or moving out of your home area (or borrowing against the home) is necessary.

Ability to save
The total final value of your pool of accumulated retirement savings will depend to a considerable degree on the capital you can contribute. Investment capital may come from a regular source such as business income, or it may come in lump sums, for example from the sale of a business, or from a legacy.

Rate of return
The other contributor to the total final value of your pool of accumulated retirement savings is the rate at which your investments grow (after costs, tax and inflation). Growth is unlikely to be at a frenetic rate, unless you opt for extremely high-risk investments.

What income will you need when you retire?
What income will be required in retirement? The answer to this question is different for every individual, but you should probably assume that your income needs in retirement will be at least 60-70 percent of the income you will be receiving just before retirement. These needs can only be satisfied by any state pension paid, plus any alternative income sources (such as beneficiary income from a family trust), plus personal accumulated savings.