Balancing your business and retirement goals

The advantage of a holistic approach to business transition

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By Don S. Clardy

Don S. Clardy is a wealth management advisor for Northwestern Mutual. Photo provided.

It’s a day most business owners both dream about and dread: retirement. To get to this major milestone, you’ve put in long hours. Sacrificed time with family and friends along the way. Dealt with customers who don’t pay and vendors who don’t deliver. Transitioning out of the business and into the next exciting phase of your life should be the easy part, right? Not always.

Why wealth must be managed

Your business may represent your largest asset and the foundation for the money you will need in retirement. These taxable assets, along with whatever you’ve set aside in your qualified retirement plan and/or individual retirement account(s), will need to generate sufficient income to last 20 to 40 years once you stop working. How will you ensure that your money goes the distance?

Business experts suggest developing a plan that coordinates your business transition and retirement goals. Among other things, the goal is to determine a sustainable income that will help ensure financial security and the realization of your dreams for the future.

A comprehensive transition plan can also provide a timetable and strategies that may help you reduce the tax liability on the transferring of assets on the sale of your business. It can help make sure your income needs are met in the future by taking advantage of opportunities such as setting up a pension plan or other type of a retirement compensation agreement prior to the sale of the business – a move that may assist in reducing the corporate taxes and deferring personal taxes. It may also highlight opportunities to prepay future expenses, thus possibly reducing the amount of after-tax income you may need in retirement. Examples include paid-up life insurance and a special trust to pay for uninsured medical expenses incurred after retirement.

Take stock of your financial situation

Most business owners do not have a tremendous amount of investment cash at their disposal while they’re growing a business, so with the sale of a business you may be overwhelmed by how best to streamline your finances and preserve and protect your new cash.

Instead of handling this by yourself, consider working with a financial professional – someone who can show you how to maximize the proceeds from the sale of your business, based on hypothetical investment returns and withdrawal rates; explain various investments, so you can choose those that align with your long-term goals and risk tolerance; help you structure an asset allocation strategy for your portfolio, monitor your portfolio’s performance over time and help you make adjustments as your goals and needs change; and identify and fill gaps in your financial and estate planning.

A business transition expert has the resources to answer more than just the investment management aspect of your wealth. Retirement income distribution planning, estate planning, family gifting and legacy, charitable planning, and medical and long-term care planning are all areas that should be integrated into your overall plan. Together, they may pay major dividends in terms of financial security for you and your family for years to come.

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