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Three Tips to Help High-Net-Worth Business Owners Transition Smoothly into Retirement Thumbnail

Three Tips to Help High-Net-Worth Business Owners Transition Smoothly into Retirement

Three Tips to Help High-Net-Worth Business Owners Transition Smoothly into Retirement

Most people have thought about how they hope to spend their newfound free time in retirement, but few have carefully considered the practical steps they will take when leaving the workforce. Although retirement seems to some like a distant goal that can be handled later in life, the key to exiting the workforce smoothly is thorough planning and preparation. High-net-worth business owners must address an additional layer of complexity in this transition, and their preparations for retirement often look different from those of employees. On top of planning for their personal goals and finances without the benefit of a pension or employer-sponsored retirement account, business owners have to decide what will happen to their businesses after they leave and who, if anyone, will take over their role in the company.

Determine When You Want to Retire

Many individuals plan for retirement with a specific year in mind or set a net-worth goal for how much they want to have accumulated before retiring. One common way to determine when you will retire is to first set a goal for the lifestyle you want in retirement and the income you will need to support it. Someone who wants to travel extensively in retirement may need to save more than someone who is most excited about spending time with their grandchildren or cultivating a garden. With a retirement income goal, you can estimate the amount you will have to accumulate to safely withdraw that income and how long it will take you to achieve that goal at your current or projected savings rate. If you instead begin by setting a goal for the age you would like to be when you retire, you can use that date to determine how much you need to invest each year and adjust your strategy and savings rate accordingly.

Some business owners race toward financial independence with the goal of retiring as early as possible. In contrast, others continue to work long after they have surpassed the need for a paycheck. Staying in the workforce for just a little longer might feel justified when you’re passionate about your business and could continue growing your net worth by waiting. For high-net-worth business owners, the timing of retirement can be as much an emotional question as a financial one, and only you can decide when you have accumulated enough and feel ready to retire. 

Develop a Business Succession Plan and Exit Strategy

Although you may feel excited about what you will do in retirement, leaving your business may still feel intimidating or overwhelming. Developing a comprehensive business succession plan and exit strategy can help a business owner feel comfortable moving on from what was likely a significant portion of their life. Moreover, keeping your exit strategy in mind early on in the life of your business can help you position your business in a way that increases the probability of a smooth exit when you retire. Realistically assessing the current value of your business and setting goals for its next stage will enable you to make sound business decisions in accordance with those goals, allowing you to sell, give, or close your business with confidence and dignity.

If you decide to sell, start thinking now about who you want to take over the business. You may prioritize keeping the business in your family and passing it down to your children. If this is the case, start having conversations about your hopes and expectations now to ensure your family members are on the same page. If you’re keeping the business in the family, you may also choose to pass it on as a gift or sell it to your child at a discount to the fair market rate. Be aware of the gift tax rates associated with this and plan accordingly. Alternatively, you could choose to look for a different buyer who shares your passion and whom you feel can take the business in a direction that aligns with your goals. You may consider selling the business to a trusted employee, or you may look to sell on the open market or merge with a larger company. You could choose to sell the business in installments to generate income in retirement. Or instead of selling, you might decide to hire someone to take over your daily tasks and responsibilities while you maintain ownership.

Work with a Financial Advisor

Those with complex financial needs and questions about the best strategies for ensuring a smooth and gratifying transition into retirement may benefit from the help of a financial advisor. If you decide to hire an advisor, it’s important to find one who is trustworthy, transparent about how much you will pay in advisory fees, and forthright about how those amounts are determined. Some worry that advisory fees may cut into their expected returns, and if you’re already financially savvy and confident in your own financial plan, you may find that working with an advisor is not right for you. However, working with a financial advisor can be extremely beneficial for high-net-worth business owners who aren’t already confident in their retirement strategy and business succession plan. A financial advisor can guide you in developing and sticking to your retirement saving and spending plans to help you feel secure in your retirement. Moreover, they can analyze your expected income in retirement; manage your assets to help increase your returns; and help you adapt your spending plan as your desires, priorities, health, and circumstances change in the various stages of your retirement.

If you want more detailed and personalized guidance on how to prepare for retirement or create a business exit strategy, you’re in the right place. The financial advisors at Business & Financial Strategies would love to meet you to learn more about your professional and financial goals and help you with business succession planning, buy/sell agreements, investment management, and retirement spending plans. Its financial advisors provide personalized guidance tailored to help you and your business thrive after you retire. Business & Financial Strategies has offices in the Iowa City/Coralville area and Fairfield, Iowa, and it serves clients throughout the United States. To learn more, call 319-358-7700, or go to www.BFSFinanicalPlanning.com to schedule a complimentary 20- to 30-minute in-person or virtual initial conversation. 

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