Written by The Five Retirement Risks That Quietly Derail Business Owners
Why the Same Traits That Built Your Business Can Work Against You at the Exit
You built something that most people never will. You made payroll when it was tight. You worked nights and even weekends, and nobody saw it. But here is the uncomfortable truth. The same things that made you successful in business can quietly wreck your ability to separate your time from your money.
I see it all the time. A business owner in their fifties assumes that the business is the plan. Then the sale falls through, or the tax bill is twice what they expected, or their health changes before the exit even happens.
In this article, I am going to walk you through the five risks that derail an entrepreneur’s retirement, and for each one, I will give you a single question to ask yourself today. Stay with me until the end, because the fifth risk is the one almost nobody plans for.
I’m Dre Griggs. I’m a Certified Financial Planner and an economist, and I’ve spent two decades in the financial industry. I own Obsidian Wisdom, an independent Registered Investment Advisor, where I help entrepreneurs connect their taxes and investments so they can turn what they’ve built into multiple income streams that don’t need their time.
About seventy five percent of the people I work with are business owners, so you will know that these are patterns I see over and over again. Let’s get into it.
Risk One: Concentration Risk
For most business owners, the single biggest asset they own is their business. That makes sense, because they are constantly reinvesting in it year after year, and it gives them their best returns. Reinvesting is how you built it. Reinvesting in yourself, in your employees, in everything else.
But when you put your economist hat on for a second, if I told you that seventy to eighty percent of your net worth is tied up in one private company, in one industry, in one town, in an asset that cannot easily be sold, you would tell me I’m crazy. Yet that is exactly the position many business owners find themselves in.
There is a second layer to this. Your income comes from the business too. So your paycheck and your retirement savings are tied to the same asset. If the business has a bad year, both take a hit at the same time. In economics, we call that a single point of failure.
The fix is not to stop investing in your company. You would not listen to me even if I told you to do that. The fix is to start building wealth outside of the business while still allowing the business to grow. That could be retirement or taxable accounts that your business leverages. It could be real estate. The goal is to have income sources that do not depend on the business surviving.
Your question for risk number one. If my business disappeared tomorrow, what would I retire on? If the honest answer is not much, that is your starting point.
Risk Two: Exit Risk
This is the gap between the number you already have set in your head and the number buyers are actually willing to pay. Most owners carry a number around. It might have come from ChatGPT, or something you heard at a conference, or what a competitor sold for, or simply a number that feels good. But the way you feel about your business and the way others feel about it are not always the same.
Buyers do not pay for your years of effort. They pay for the future cash flow they believe they will get to keep, and they look hard at the numbers. It can be a painful experience, the way they talk about your business, and you may feel personally attacked. They will look closely at how much of the revenue depends on you personally. They will check whether you have just a couple of very large customers generating most of the book of business. They will look at how the team runs without you, and whether you have really built a company or just built yourself a job.
It is important to remember that even when the deal does go through, the structure of that sale matters as much as the price. There is the headline number, but that can include earnout payouts, meaning you only get paid once the business hits certain targets after you leave. It might include seller financing, where you become the bank and get paid over time, which can become part of your retirement income and can also help with your taxable income. You may be asked to stay on with the company, and depending on how you feel about that, you may not want to become a consultant in your own former business.
There is more to an exit than the price alone. There is the structure of that deal, how much of it you ultimately keep, and how much of your time you trade just to get the deal across the finish line.
Here is the part people do not like to hear. A decent number of businesses never sell at all. Some close. Some get passed to family who do not actually want them. Some owners just keep working, with no real exit in the plan. None of that means you cannot have a great exit. It just means that having an exit as the plan requires setting aside time years in advance to get it right.
Your question for risk number two. Has anyone outside of my company valued the business in the last two years? If not, you are planning for a retirement that is more about guessing and feelings than about sound numbers from industry experts.
Risk Three: Taxes
For business owners, this risk can often be the largest one. For many entrepreneurs, selling the business will be the single biggest tax event of their entire life, bigger than any income they have ever earned. And yet most people start planning for it after they already have a buyer, which is usually too late to change much.
Here is why timing matters so much. How the deal is structured changes how it is taxed. An asset sale and a stock sale can produce very different results for you. How your entity is set up today affects the options you will have later. The purchase price can get allocated between things like equipment, goodwill, and even a consulting agreement, and that allocation shifts what you actually owe versus what you get to keep. The sale price is not what you keep. The after tax proceeds are what you keep.
There is a second tax problem that has little to do with the actual sale of the business. I find that a lot of business owners have their savings concentrated in one bucket, usually the pre tax bucket like a 401(k) or the business itself. That means when you retire, you have very little control over your tax bracket, because every dollar you pull out is taxed as ordinary income.
There are strategies worth exploring with a Certified Financial Planner, such as spreading the gains over several years with an installment sale, or qualifying as a C corporation selling to an employee stock ownership plan. You might look at Section 1042, which may allow your gains to be deferred. In the years leading up to the exit, larger retirement plan contributions can sometimes reduce taxes while building wealth outside of the business. Every situation is different, and none of these are automatic. The point is that you want time on your side.
Your question for risk number three. Do I know what I keep after taxes, not just the sale price? If you have never run those numbers, you do not actually know what your business is worth to your retirement.
Risk Four: Income Replacement
For years, maybe even decades, the business has paid your salary, your distributions, your perks. The money just shows up, and you probably never had to think much about where your paycheck comes from. The day after you exit your business, everything changes. Now you have to build a paycheck from scratch out of a pile of assets, and that is a completely different skill set than building the business itself.
This is where something called sequence of returns risk comes in. The simplest way to describe it is that a loss hits differently depending on whether it happens at the beginning or the end of your retirement. If it happens early, the impact is much greater. Two people can retire with the exact same amount and earn the exact same average return over twenty years, and the only difference is the order those returns happen in. The person who hits a bad market in year one of retirement, while also taking withdrawals, can end up with significantly less money than the person who hits that same bad year ten years into retirement. Same average return, completely different outcome.
For business owners, this risk is often bigger, because the sale tends to convert a lot of wealth into investable cash at one single moment in time. What you do in the first five years after that matters more than almost anything else.
That is why I talk about building multiple income streams, layers of income from different sources with different tax treatment and different levels of risk. One source can have a bad year while the others carry you through it.
Your question for risk number four. Where does my monthly income come from the day after I sell the business? If you cannot answer that in specific dollars and specific sources, that is a gap worth closing.
Risk Five: You
The fifth risk is one that almost nobody plans for, and it is you.
In a lot of small businesses, the owner is the business.
- You hold the key relationships.
- You make the big decisions.
- You carry the institutional knowledge of where everything is and how everything works.
That is your strength while you are healthy and showing up every day. But what happens if you cannot show up?
If you or your spouse faces a serious illness, or a long recovery, can a business that depends on you still maintain itself? Or would that dependence significantly decrease the value of your business, since a bad year of growth right before a sale can change the price you are able to get?
There is also a healthcare gap specific to entrepreneurs. Employees can often access coverage through a spouse’s plan, but many business owners who exit before sixty five have to buy their own coverage until Medicare starts. That can be a significant expense that never gets calculated into the retirement plan at all.
I train for Spartan races, and one thing that has taught me is that you do not get to control every obstacle. You get to control how prepared you are when the obstacle hits.
Disability coverage, key person protection, a documented plan for who runs things if you cannot, and a realistic healthcare budget for the years before Medicare. That is what preparation looks like.
Your question for risk number five, and this one is a tough one. Could my business run for six months without me? If the answer is no, both your retirement and your business are more fragile than you might think.
The Risk Nobody Names: Identity
I promised five risks, but there is one more worth mentioning quickly, and that is identity. For a lot of owners, the business is not just what they do. It is who they are. When that title goes away, so can that sense of purpose. I have seen people sell, take a few months off, and then feel lost. Some even jump back into another business they did not really want, simply because they needed to feel useful again.
Retirement is not only a financial transition. It is a life transition. Knowing what you are retiring to matters just as much as what you are retiring from.
The Five Questions, All in One Place
Concentration risk. If my business disappeared tomorrow, what would I retire on?
Exit risk. Has anyone outside of my company valued this business in the last two years?
Taxes. Do I know what I keep after taxes, not just the sale price?
Income replacement. Where does my monthly income come from the day after I sell my business?
You. Could the business run for six months without me?
If you could not answer two or more of these questions with confidence, that is not a failure. It simply means there is work to do, and the earlier you start, the more options you will have.
Until next time,
Dre Griggs | Obsidian Wisdom | Work optional. Wisdom required.
You’ve Built the Business. Now Build the Retirement.
I help entrepreneurs connect their taxes and investments so they can turn what they’ve built into multiple income streams that don’t need their time.
Schedule a Retirement Tax & Strategy Session to discuss how to turn what you’ve built into lasting retirement income.