“My Business Is My Retirement Plan” Is a Risk
“My business is my retirement plan” is something we hear constantly from business owners, usually said with real confidence. It makes sense on the surface — the business is often the most valuable thing they own. But “my business is my retirement plan” is actually one of the riskier financial positions a person can be in. Most owners have never had someone walk them through why.
The short version: According to the Exit Planning Institute, most business owners have 80% to 90% of their net worth tied up in their company. That number only becomes real, spendable retirement income if the business actually sells. And a large share of businesses that go to market don’t sell, or don’t sell for what the owner expected. Treating the business as a retirement plan, without a separate plan for turning it into cash, is a real gap — not just a technicality.
Why “my business is my retirement plan” is risky
The risk isn’t the business itself. It’s the concentration. Most financial advisors flag anything over 10-20% of net worth in a single asset as a concentration risk worth managing. Business owners routinely carry 80-90% of their net worth in one illiquid, hard-to-value asset. That asset depends entirely on someone else being willing to buy it. The price hasn’t been tested, and the timing isn’t fully in the owner’s control.
The illiquidity problem: your net worth isn’t spendable
Net worth on paper and money you can actually spend are different things. A business valuation is an estimate, not a bank balance. Until the business sells, that number can’t pay for groceries, healthcare, or a mortgage. If something forces an early exit — health, a partner dispute, a sudden opportunity, an economic downturn — the gap surfaces fast. Paper net worth and available cash suddenly look very different.
Consider a straightforward example. An owner’s business is valued at $3 million on paper, but they have only $150,000 in a retirement account and modest personal savings otherwise. If a health event forces retirement next year, that $3 million doesn’t become spendable income overnight. Instead, it becomes a business that needs to be sold, valued, and transitioned. Often that happens under time pressure that works against getting full value for it.
Most business exits don’t go the way owners expect
This is where the numbers get uncomfortable. Industry estimates commonly cited from Exit Planning Institute research suggest that 70-80% of businesses listed for sale don’t actually sell. A substantial share of business exits happen involuntarily, too — triggered by health issues, family emergencies, disputes, or economic conditions rather than a planned, chosen exit. An owner who assumes they’ll sell on their own timeline, at their own price, is planning around an outcome. That outcome happens less often than most people think. And even among the businesses that do sell, the final number frequently comes in below what the owner expected. An untested valuation is, by definition, just an estimate until a real buyer agrees to it.
What this looks like for a family-owned business
Family-owned businesses add another layer to this. The business isn’t just a retirement plan. It’s often the asset a succession plan depends on. Multiple family members may expect to benefit from it — as both an owner’s retirement and a next generation’s inheritance. When all of those expectations rest on one illiquid asset with an untested value, disagreements tend to surface. Timing, valuation, and fairness become flashpoints right when the family can least afford them. A sibling who works in the business and one who doesn’t may have very different ideas about what’s fair. Without a plan in place ahead of time, that conversation happens for the first time under stress. It should happen calmly, well before anyone needs it to.
The levers that actually reduce this risk
None of this means selling the business early or panicking. It means building real diversification alongside the business, using tools designed for exactly this. Retirement plan contributions move wealth out of the business and into accounts that don’t depend on a future sale. Options include a SEP-IRA, SIMPLE IRA, Solo 401(k), or defined benefit plan, depending on your situation. A buy-sell agreement, funded properly, creates a plan for the business and its value. It covers what happens if an owner dies, becomes disabled, or wants out. Key-person insurance protects the business itself if something happens to the person it depends on most. Each of these is a structural fix, not a prediction about when or how you’ll eventually exit.
Where a real diversification plan comes from
Retirement plan design is something we work through directly as part of tax and business planning. Actual investment and diversification strategy is a conversation for a financial advisor, not an accounting firm. Where money outside the business should go, and how much, is specific, regulated advice outside our scope. We work alongside Wealth Management LLC, an independent Registered Investment Advisor, for that piece specifically. See how retirement planning and that partnership work together.
What this means for you
If most of your net worth is tied up in your business, that’s not automatically a mistake. It’s simply the reality of building something valuable. The mistake is not having a separate plan for the rest of your future. That future shouldn’t depend entirely on a sale going exactly as hoped. Start with a real conversation about where you stand.
Frequently Asked Questions
Is it bad that most of my net worth is in my business?
Not inherently — it’s common, and often unavoidable while you’re actively growing the business. The risk comes from having no separate plan alongside it, not from the concentration itself.
What percentage of net worth should be outside the business?
There’s no single right answer — it depends on your age, industry, and goals. This is exactly the kind of question a financial advisor should help you answer specifically, not a general rule of thumb.
What if I plan to sell the business for my retirement?
That can work, but it depends on a sale happening on your timeline, at your expected price. Industry data suggests that doesn’t happen for a majority of businesses that go to market. A backup plan matters even if selling is still the goal.
How does a buy-sell agreement help with this?
It creates a pre-arranged plan and funding source for what happens to your ownership stake if you die, become disabled, or want to exit. Otherwise, your family or business partners are left figuring out valuation and cash under pressure.
Does this apply if I plan to pass the business to my kids instead of selling it?
Yes, often even more so. A succession plan still depends on the business having a real, agreed-upon value. Your own retirement shouldn’t depend entirely on payments from a business your family now runs.
When should I start addressing this, if I’m not planning to exit for another 10-15 years?
Now is generally better than later. Retirement plan contributions and diversification compound over time. A buy-sell agreement or key-person insurance only protects you if it’s in place before something happens, not after. A 10-15 year runway is actually the ideal window to build these pieces gradually. That’s much better than scrambling to catch up close to an exit.
Not sure how exposed you actually are?
Let’s talk about your retirement plan options and how they fit alongside your business.
Schedule a Free Consultation See Retirement Plan OptionsAbout the Author
Frank Fiore, CPA — President & Visionary, Accounting Freedom
Frank Fiore is an Investment Advisor Representative and has spent 20+ years helping small business owners understand the real risk of having their net worth locked up in their business, and what to do about it. Accounting Freedom serves clients from offices in Mundelein, IL and Grafton, WI.
This article is provided for general informational purposes only and does not constitute tax, legal, accounting, or financial advice. Every business situation is different. Before acting on anything you read here, please consult with a qualified advisor — including, we hope, us. Reach out to Accounting Freedom for guidance specific to your situation.