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How So Many Entrepreneurs Are Making Early Retirement a Reality

02/20/2015 01:51 pm ET | Updated Apr 22, 2015
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There's a new trend in the tech field and it involves entrepreneurs enjoying early retirement. While the idea certainly sounds appealing, it's not something that happens by chance. It takes careful strategizing and you'll need to make a plan.

For an entrepreneur, the thought of retirement is peculiar. On the one hand, it sounds like something you would enjoy and would give you a chance to relax, travel, and spend more time with your family. On the other, it causes anxiety. How could you possibly give up control of your business and leave other people in charge of your life's work?

It's the latter part of the equation that drives many entrepreneurs to continue working well into their 60s, 70s, and even 80s. However, rarely is it necessary. If you properly plan for early retirement from the beginning, you can enjoy the luxuries of relaxing, traveling, and spending more time with your family while in your 30s, 40s, or early 50s. It's all in the preparation, and you can't afford to take an unorganized approach.

4 Ways You Can Prepare for Early Retirement

While no two businesses function identically, there are some standard principles that can be applied across the tech industry with widespread success. If you're a young entrepreneur and early retirement is something you're interested in, there are a few ways you can prepare.

Build With an Exit Strategy in Mind

When launching a new startup, it can be difficult to imagine the day when you'll sell your company. However, the most successful entrepreneurs are the ones who build a business with an exit strategy in mind. Martha Kendler, Northwestern Mutual's director of business markets, likes to point tech entrepreneurs to companies like Instagram -- which sold for $1 billion in 2012 - and WhatsApp - which was purchased for $19 billion in 2014. In her opinion, "Choosing a niche market and then building a large base of loyal customers and serving them well are common hallmarks of tech businesses sold successfully by their founders."

Tangibly, there are a few ways you can build a business with the sale in mind. While it can seem unnatural, the best thing you can do is make sure the business isn't dependent on you. You should try to decentralize responsibility at all costs and delegate wherever possible. This makes potential buyers more comfortable about the success of an ownership change and ensures there is little change in how processes are handled.

Choose a Pension Plan

It's easy to take part in an employee-offered pension plan when you're working at a large corporation, but it's something that entrepreneurs often forget when they're running the show themselves. However, don't ignore the importance of a retirement account. According to Pension Transfer Experts, it's important to "get professional advice and recommendations tailored to your specific circumstances." In other words, you need to setup a pension that's specifically designed to reward entrepreneurs.

Your best option is probably a Simplified Employee Pension, or SEP IRA, which allows even single-person operations to designate as much as 25 percent of their self-employment income to an IRA retirement account.

Have a Succession Plan

Once you realize retirement is on the horizon -- whether it be one, five, or 10 years down the line -- it's important to start developing a detailed succession plan. This will allow you to sell your interest in the company without affecting continuity and business operations. Ideally, you should be able to pick a successor and groom him or her for their pending role. This lets you push the business in the direction you'd like it to go, while simultaneously allowing you to step back.

Understand What Life After Retirement Actually Looks Like

A mistake many entrepreneurs make is not understanding what life after retirement actually entails. This can go one of two directions, depending on your expectations. The first expectation is that retirement will be a breeze. You assume that it's all about sipping frozen drinks in a poolside cabana or propping yourself up in front of the TV for hours on end. In reality, you'll find that retirement is actually a little busier. There are chores to be done, children or grandchildren to look after, and projects that need to be completed. While there's nothing wrong with these things, they may take you by surprise if you think it's going to be nothing but relaxation.

The second expectation is that retirement is just another job title. You assume that it's just your way of taking a step back, but that you'll still be calling all the shots, making the business decisions, and handling logistics. While you could still have a small role with your business, it's not really retirement if you're still in charge. If your expectation is that your capacity won't change after retirement, you'll be in for a surprise.

Your business is your baby and letting go can be tough, but you must be willing to take on the next phase of your life. Talk with your retired friends about what retirement is actually like and have realistic expectations.

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