May, 2014
By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC

Can you afford to retire?

Have you estimated the amount of investment assets that you need to produce plenty of income in the future? Have you talked with your advisory team about income options, taxes on the sale of the business, and your current basis in the stock of your privately-held company?

Many business owners that we start working with have not taken the time to estimate the personal net worth that they need to retire.

There are a lot of business owners who transition out of their company, let someone else take over, and those individuals could easily live another 25-30 years. Having enough assets to generate income for that long is an important topic to be thinking about.

There are several different building blocks that go into developing security for the future. In this article, I will review four of those building blocks.


For many business owners, owning the real estate where their company is located is a good idea and many business owners bought the real estate years ago and already have the mortgage paid off.

Hopefully the real estate was bought in a limited liability company or in joint name with a spouse and it’s not part of the corporation your business is in as well. If the real estate is in the business, talk to your accountant about the tax ramifications of moving it into an LLC.

If the real estate is separate and preferably in a limited liability company, then the business can be sold and the new owner can possibly continue to rent the real estate. That rental income is normally a very good income source for both the former business owner and their spouse in the retirement years.

The real estate can be used later, not only for retirement income for both the owner and spouse, but it can also be an asset that can be divided among children and grandchildren or other beneficiaries.


Contributing 10%-15% of one’s income over the last 20 or 30 years of their career to a qualified retirement account is a good idea. Most people do not start contributing to a qualified retirement account early enough and they do not put enough assets into those tax deductible accounts. Contributing to a 401k plan, SEP IRA, SIMPLE IRA or some other type of qualified plan is a good way to build up liquid assets that can be used later in retirement years. Also, for younger individuals, putting some cash into a ROTH IRA is not a bad idea. When you put cash into a ROTH IRA, you do not get a tax deduction, but the assets continue to grow tax free for many years and then when income is pulled out, it’s not taxable. This is an excellent tool for younger individuals.

When you reach a point in your career that you’re thinking about selling your company, hopefully you have a large amount of assets in some type of qualified retirement plan. When you no longer have a salary coming in from your company, then you can think about rolling all of your retirement accounts into one IRA and managing that account based upon your goals for the future.

Some individuals that we work with may have $200,000 - $300,000 in a qualified retirement account and some may have over a million dollars. This is an important building block because the assets are usually very liquid and the account can be designed to provide good retirement income based upon interest, dividends, and capital gains.

Managing retirement assets is completely different from managing a business. It is very important to reduce annual expenses and commissions and diversify these liquid accounts so that your assets are protected from the fluctuations of the stock market and our economy. In future newsletters I will talk more about reducing costs, good diversification, and different management techniques.


Building a personal net worth away from the company is very hard for business owners. There are many people that we meet where 70% or 80% of their net worth is wrapped up in their business. Over the years they have always taken their profit and plowed it back into the company in order to buy more inventory, open more stores, or make their buildings bigger. I realize that all of these ideas are good for the company, but it makes selling the company for a high value imperative in order for this family to retire comfortably. They do not have enough personal assets to help provide income for the next 25-30 years.

If possible, when you are in your 40s or 50s, open up a personal investment account at a discount broker such as Charles Schwab, Fidelity, TD Ameritrade, or a company like those. These discount custodians normally provide the lowest transaction cost for acquiring investment assets.

Take some of your profits out of the company and purchase good long-term assets that you can count on in the future. Normally, for the clients that we are working with, I suggest in general terms to take any risk that they are going to take inside the company where they can control what they are doing. If they are lucky enough to make a profit at the end of the year, do not take those profits and risk them a second time in a custodian account by buying investments that have a higher risk in an uncharted future. Grow your personal net worth by purchasing large “Blue Chip” stocks that always pay dividends, purchasing tax-free or taxable bonds that are laddered over several years. Currently interest rates are very low, so we would not normally advise anyone to be purchasing long-term bonds. Also, there are floating rate bonds and convertible bonds that should be considered.

Personal investments do not have to be in the stock market. You may also be interested in purchasing farmland, apartment buildings, office buildings, and other types of income producing real estate.


Hopefully some of your net worth is in building blocks one, two, and three which I have outlined above. Building block four would be the sale of your company. Designing the sale of a business depends a lot on who the buyer is. If you’re selling to your children, or perhaps your key employees, they probably will not have a large down payment. It may be necessary to sell the company to them over a period of years, and they will be making monthly payments to you for a long time.

If you are selling to someone else within the same industry, you will probably get a slightly higher price and you will probably receive most of your cash in one or two payments.

Analyzing the taxes on selling your company becomes very important at this time. How flexible is the buyer going to be in the terms of the sale?

Based upon your gross margin, usable cash flow or adjusted EBITDA, is there enough annual cash flow for the buyer to make payments to you?

If you sell to someone in the industry, will you have enough cash left after taxes to provide you with adequate retirement income? If you sell to your children or key employees, do they have enough training and knowledge to run the company and continue to make payments to you for many years in the future?

Do you want your children to go to the bank and get a loan to purchase part of the stock in the company? Will your banker approve such a loan?


Preparing for the next 25-30 years is obviously very important. Having some of your personal net worth in each of the 4 building blocks discussed above makes designing a secure retirement easier. If all of your assets are in two building blocks, then it becomes more difficult. If all of your assets are in one building block, then we need to be very careful and make sure that we get it done right the first time.

If you are currently in your 30s, 40s, or 50s, please start accumulating assets in more than two of the four building blocks. If you are in your 50s or 60s, then I hope that you have substantial assets in at least 3 of these building blocks.

Surround yourself with a financial advisory team that can look at your current financial situation and make lots of suggestions on how you can get prepared for that special business transition date somewhere in the next 3-5 years.

If you would like to go into more detail about any of these building blocks and protecting your net worth, please let me know.

Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit, call 1-888-849-9559 or e-mail Gary directly at .