As a successful business owner, you have likely accumulated significant net worth over the years through your closely held family business. However, as you approach retirement and prepare to transfer or sell your business, managing retirement income can become a complex issue.
This article will explore various retirement income options for business owners and provide guidance on managing retirement income.
If you’re the owner of a closely held business, your net worth may be comprised of stock in your company, personal savings, your home, an IRA or 401(k), and perhaps the real estate where your business is located.
As you plan for retirement, it’s crucial to consider how you’ll secure a steady income and protect your net worth for yourself, your significant other, and future generations. When it’s time to transfer or sell your business, there are various retirement income options to consider.
If you’re selling or transferring your company to the next generation, there are many ways to tailor retirement income and other benefits. These may include remaining on the company’s board of directors, selling goodwill, signing a non-compete agreement, entering into a consulting contract, and arranging deferred compensation.
Some of these options may reduce your annual income taxes and provide you with more benefits, while others will be better for the next generation buying you out. If you’re selling your company to someone outside your family and receiving an all-cash buyout, you’ll need to consult with your financial advisor and accountant.
You’ll want to consider different strategies to help reduce your taxes that will be acceptable to the buyer. For example, if you own the real estate where the business is located, you could continue to rent the real estate for several more years, which can be an excellent source of retirement income.
Personal retirement income is also a critical consideration for business owners. If you’re older than 59 ½ when selling your business, you’ll need to decide how to manage your net worth in the future.
This includes protecting your liquid assets such as your IRA account, personal investments, the cash you received from selling the company, and any personal savings you’ve accumulated.
You may have focused on investing your assets for growth over the years. However, now is the time to start thinking about replacing the salary that’s going away as you sell the company, while also protecting your assets against inflation and the shrinking dollar.
Previously, you may have protected yourself for the future by growing your business and increasing your salary and bonus. However, once you no longer own your company, that strategy will no longer work.
It’s recommended that you work closely with your financial advisor to design an asset allocation plan to diversify and protect your assets and provide you and your significant other with a steady stream of retirement income. In this economy, more diversification equals more safety.
Managing retirement income is crucial for business owners. It’s essential to surround yourself with the best accountants, attorneys, and family financial advisors to help you manage your total net worth.
The advisors you worked with when you had your company were committed to doing what was best for you, and they were all independent. Now that you’re managing liquid assets, it’s still crucial to ensure that your advisors are knowledgeable, have a proven track record, and are completely independent to provide the advice you need to protect your assets not only for your retirement years but also for future generations.
In conclusion, as a successful business owner, you’ve likely accumulated significant net worth through your closely held family business. Planning for retirement and managing retirement income can be complex, but by considering various retirement income options and working with trusted advisors, you can secure a steady income and protect your net worth for yourself, your significant other, and future generations.
The commentary provided here is solely for general information purposes and should not be interpreted as legal, tax, or investment advice, nor does it establish an attorney-client relationship. It's important to note that past market performance is not a guarantee of future results. While the information presented has been gathered from reliable sources, it is not guaranteed.
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