By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC
Most business owners have increased their net worth over the last 20 to 30 years by growing their closely-held family businesses. When it comes time to retire and transfer the businesses to the next generation, or sell them to someone outside the family, owners realize that managing retirement income can be complicated.
If you are like the majority of closely-held business owners, most of your net worth is made up of stock in your company, some personal savings, your home, an IRA or 401(k), and maybe the real estate and building where your business is located.
As you begin to plan for retirement, you need to be thinking about how you are going to have a secure income and protect your net worth for your spouse, children, and grandchildren.
Business Retirement Income
If you are selling or transferring your company to the next generation then you have many choices for tailoring retirement income and other benefits, not only to protect you but also your family. Consider ideas such as income for being on the company board of directors, selling goodwill, non-compete agreements, consulting contracts, deferred compensation, and other options. Some of these may reduce your annual income taxes and provide you with more benefits, and some will be better for the next generation who is buying you out.
If you are selling the company to a non family member and receiving all cash from the transaction, then you also need to talk to your financial advisors and accountants about different strategies that will help reduce your taxes and be acceptable to the buyer as well.
If you own the real estate where the company is located, one option that many business owners use is to sell the company but continue to rent the real estate for several more years. The rental income, for many individuals, is also an excellent source of retirement income.
The important thing to remember is that when you get ready to transfer or sell the business there are many retirement income options for you to consider.
Personal Retirement Income
If you are over 59½ and you are selling your business, then one of the decisions that you need to make is how to manage your net worth in the future. This includes protecting your liquid assets, such as your IRA account, personal investments, new cash that you received from selling the company, and personal savings that you have accumulated over the years. In the past perhaps you have invested your assets for growth but now it is time to start thinking about more retirement income to replace the salary which has gone away and also protecting those assets against inflation and the shrinking dollar. Before you could protect yourself for the future by growing the business and increasing your salary and bonus. Now you no longer own the company so that strategy will not work. I suggest working closely with your financial advisors in order to design an asset allocation plan to diversify and protect your assets and provide you and your spouse with a steady stream of retirement income. In this economy, more diversification equals more safety.
Managing your liquid assets in retirement does have some similarities to running your privately held company. For example, in your business you deployed your capital into areas that would provide you the best return. With your liquid assets you want to deploy those assets into investments that provide you with a mix of current income for now and increasing income or increasing asset value for the future.
Managing Retirement Income
As it was in your business, in retirement it is imperative to surround yourself with the best accountants, attorneys, and family financial advisors that you can find to help you manage your total net worth. All of those advisors that you worked with when you had your company were totally committed to doing what was best for you and all of them were independent. Now that you are managing liquid assets you still want to make sure that all of your advisors are knowledgeable, have a proven track record, and completely independent in order to provide the advice that you need to protect your assets for your retirement years and for your children.
In today’s tough economy I think it is important for you to have advisors with more options. Lower costs per year for the services that you are getting is always desirable too.
When you pick advisors for your retirement assets there are two choices: fee-only and fee-based. First, fee-only are independent registered investment advisors that usually charge annual fees or hourly fees to provide comprehensive advice in managing a family’s total net worth. Many of these individuals belong to the National Association of Personal Financial Advisors (NAPFA). By being independent these advisors normally have more options to pick from in order to protect their clients personal net worth including retirement assets.
Second, fee-based advisors normally work for a brokerage firm, bank, or insurance company and receive most of their income from commissions and selling products. Their cost per year can be higher and their options to work with are limited to what their company provides.
It would also be good for the advisor that you choose to be a certified financial planner (CFP). These CFPs have more diversified training and are required to have lots of continuing education every year.
It is very important that you surround yourself with the best advisors that you can find, no matter where they are located. With proper management of your business and personal retirement income, you can count on a secure income that lasts a lifetime.
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 www.Castle3.com, call 1-888-849-9559 or e-mail Gary directly at .