Building Security Beyond the Shop
You’ve spent decades building beautiful furniture and a successful business. But what happens when your hands can’t do the work anymore? When the long days in the shop become too demanding? When you’re ready to stop?
Many self-employed woodworkers reach their sixties to discover they’ve built a business but not a retirement. The shop has value, but only to someone who wants to run it. Personal savings may be modest—the money always went back into the business. Social Security alone won’t maintain your lifestyle.
Retirement planning for woodworking business owners requires different strategies than traditional employment. Start now, regardless of your age.
Assessing Your Current Position
What Do You Have?
Business assets:
- Equipment and tools (replacement value)
- Inventory (lumber, materials)
- Real estate if you own your shop
- Customer list and goodwill
- Brand and reputation value
Personal retirement assets:
- IRA/Roth IRA balances
- 401(k) or SEP-IRA from self-employment
- Other investments
- Home equity
- Social Security projection
What do you need?
Most retirement planning suggests replacing 70-80% of pre-retirement income. If your business nets $100,000 annually, plan for $70,000-$80,000 per year in retirement income.
Self-Employment Retirement Accounts
SEP-IRA (Simplified Employee Pension)
Contribution limit: Up to 25% of net self-employment income, max $69,000 (2024)
Best for: High earners who want maximum tax-deferred savings
Pros: Simple to establish, high limits, flexible annual contributions
Cons: Must contribute proportionally for any employees
Solo 401(k)
Contribution limit: Employee deferral up to $23,000 plus employer contribution up to 25% of net income, max $69,000 total
Best for: Self-employed without employees
Pros: Roth option available, loan provisions, higher potential contribution at lower incomes
Cons: More administrative complexity, requires plan document
SIMPLE IRA
Contribution limit: $16,000 employee contribution plus employer match or contribution
Best for: Small businesses with employees wanting easier administration than 401(k)
Pros: Lower cost to administer, employees can participate
Cons: Lower limits than SEP or Solo 401(k)
Defined Benefit Plan
Contribution limit: Based on actuarial calculations, potentially $200,000+/year
Best for: Older high earners who need to catch up on retirement savings
Pros: Massive tax deductions, guaranteed income in retirement
Cons: Complex, expensive to administer, requires ongoing contributions
The Catch-Up Challenge
If you’re 55 and haven’t saved adequately, you have roughly 10 years. Options:
Maximize annual contributions: At 50+, catch-up provisions allow additional contributions to most plans.
Consider a defined benefit plan: These allow far higher contributions for older business owners, though they require actuarial administration.
Extend your working years: Working until 67-70 instead of 65 significantly impacts both savings accumulation and Social Security benefits.
Reduce lifestyle expectations: If savings are insufficient, retirement spending must adjust accordingly.
Plan for part-time transition: Rather than stopping abruptly, plan for 3-5 years of reduced work—scaled back projects, teaching, or consulting.
Your Business as a Retirement Asset
Your woodworking business may be your largest asset. But converting it to retirement income requires planning:
Sale to Third Party
Selling to a buyer who will operate the business. Typical valuation: 2-4× annual profit plus equipment/inventory value.
Requirements: Documented financials, transferable customer relationships, systems that work without you.
Sale to Employee/Apprentice
Often structured as a buyout over time. The successor takes over operations while paying you from business profits.
Benefits: Continuity for customers, gradual transition, often higher total value than third-party sale.
Family Succession
Transferring to children or relatives, often with reduced or gifted pricing.
Tax implications: Gift and estate tax considerations apply. Consult an estate planning attorney.
Asset Liquidation
Selling equipment and inventory without transferring the operating business.
Typical recovery: 20-40% of replacement value for used equipment, cost for materials inventory.
Least value capture but simplest execution.
Planned Wind-Down
Completing existing commitments, not taking new work, gradually depleting inventory and disposing of equipment.
Provides continued income during transition to full retirement.
Social Security Strategy
Self-employed individuals pay both employer and employee portions of Social Security tax—15.3% total on net self-employment income. This entitles you to benefits based on your earnings history.
Key decisions:
When to claim: Benefits can start at 62 (reduced), full retirement age (66-67), or up to 70 (enhanced). Each year you delay past full retirement age increases benefits by 8%.
Spousal coordination: If married, strategy can optimize combined benefits across both earners’ records.
Working while collecting: Before full retirement age, benefits are reduced if you earn above certain thresholds. After full retirement age, no reduction for working.
Your earnings history on Social Security statements may understate benefits if business income varied significantly—those high-earning years count more than averages suggest.
Health Insurance Transition
Until Medicare eligibility at 65, health insurance is often the largest retirement expense:
COBRA: Continue employer coverage (if you had employees with group coverage) for up to 18 months. Expensive but bridges the gap.
ACA Marketplace: Individual coverage with potential subsidies based on income. In early retirement, moderate income often qualifies for substantial assistance.
Spousal coverage: If your spouse has employer coverage, join their plan.
Health sharing ministries: Alternative to insurance for some individuals, though coverage isn’t guaranteed.
Budget $1,000-$2,500/month per person for pre-Medicare health coverage unless you qualify for subsidies.
Gradual Retirement Transition
Full retirement is often less appealing than expected. Consider a phased approach:
Years -5 to -3: Begin transitioning business—training successors, documenting processes, reducing customer dependency on you personally.
Years -3 to -1: Reduce workload to 60-70%. Focus on preferred projects. Let others handle routine work.
Year 0 (official retirement): Transfer or close the business. Maintain minimal activity if desired.
Years 1+: Optional engagement—teaching, consulting, hobby projects, mentoring.
This transition maintains social connection, mental engagement, and some income while reducing physical demands.
Physical Planning
Woodworking is physically demanding. Planning for physical limitations:
- Ergonomic shop design: Reduce strain over final working years
- Help with heavy work: Hire assistance for material handling, delivery
- Project selection: Shift toward less physically demanding work
- Health maintenance: Preserve strength and flexibility through exercise
- Hearing protection: Prevent further hearing loss that accelerates aging limitations
Estate Planning
Beyond retirement, consider what happens to your assets after death:
- Will: Directs asset distribution, names executor
- Trust: May avoid probate, provide for gradual distribution
- Business succession: Instructions for business if you die while operating
- Beneficiary designations: Retirement accounts pass by beneficiary, not will—keep these updated
- Powers of attorney: Who manages finances if you’re incapacitated
The Planning Timeline
Age 40-50: Maximize retirement contributions. Establish appropriate plans. Project future needs.
Age 50-60: Catch-up contributions. Begin business succession planning. Assess whether you’re on track.
Age 60-65: Finalize succession plan. Determine retirement date. Coordinate Social Security and Medicare timing.
Age 65+: Execute transition plan. Monitor retirement income sufficiency. Adjust spending as needed.
Professional Guidance
Retirement planning involves tax, legal, and financial decisions beyond most woodworkers’ expertise. Assemble a team:
- Financial advisor: Investment strategy and retirement projections
- CPA: Tax optimization and retirement account selection
- Attorney: Business sale structure, estate planning
- Insurance agent: Health insurance options, long-term care
Fees for professional guidance are investments in your future security.
The Bottom Line
Retirement planning isn’t optional—it’s the final phase of building a successful business. The choices you make in your 40s and 50s determine your options at 65.
Start today if you haven’t. Maximize contributions. Document your business for eventual sale or transition. Build security beyond the shop so you can step away when you’re ready—on your terms.
