One of the greatest impediments to retirement by an older generation of a family business is concern about maintaining an adequate income stream in retirement. The owner/managers of a business generally rely upon the business to provide a comfortable income and to cover many expenses. There might be a reluctance to give that up, which could lead to a postponement of retirement beyond what would otherwise be an appropriate time.

We have worked with a number of business owners on this problem, and one helpful solution could be the use of a retirement plan. If there is another, assured source of income, the business owner might be more willing to give up the reins of ownership and management a little sooner. This takes some careful planning, and there are different types of plans that might be appropriate in particular cases. One type of plan that permits the buildup of a large retirement benefit in a short period of time is the defined benefit pension plan. In contrast to the standard 401(k) plan, a defined benefit plan often permits large contributions, which can create a substantial retirement benefit in as little as 5-8 years. There are rules you need to comply with in setting up such plans, but when the situation is right, retirement plans can be an important element of a business succession plan.