DETERMINING YOUR RETIREMENT INCOME GOALS
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Goals & Objectives
Retirement planning for business owners is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk.
A Fully Funded Retirement
Business owners frequently finance the majority of their retirement funding with proceeds from the sale or transfer of their business. If that’s your plan, you need to stop to consider exactly how much money you’ll need to fully fund your retirement years based on both your life expectancy and desired lifestyle. Will you need a continued income from the business for a certain number of years?
Due to the tax ramifications to both you and the continuing business, strategic planning is critical.
Money may not buy happiness but it can buy freedom and security. And those two things contribute significantly to being happy. Perhaps because having money provides a sense of control over your life and who doesn’t want that?
We understand that money is a difficult subject for most people to talk about. It is a highly emotional and personal topic. Society has “taboos” in talking about money – how much you make and how much you have. Often it’s just better to not talk about it with your friends and family.
But it is a very bad idea not to think about money in any long term plan. That’s where Exit Planning comes in. There are several moving pieces here and they all need to be considered together to calculate if you have enough. The key components are:
How much you will spend each year?
Spending is dependent on your specific goals and objectives. Not just for your business, but your life. What type of life do you want to have? Imagine your life and make a budget that allows you to live it. Remember to add in something for unexpected expenses – things you can’t control or plan for such as health issues, family emergencies, or any other unexpected expense.
How long will you live?
Only the Almighty knows the answer to this question. But there are actuarial sources that can give you a general guess given your current age, health and so on. When you plan it is important to over-estimate your lifespan, particularly if you have some long-lived relatives. For planning we usually recommend considering the possibility of living to 100 and beyond. You may not live that long but who wants to be in their 90s, in good health, and faced with the fact that their money is running out. Given current and near term medical advances – this is becoming a too real issue for many people – just don’t let this happen to you.
What sort of legacy do you want to leave behind?
Do you want to leave something to your family, grandchildren, or a charity after you are gone? What would you like to see achieved after you’re gone? What will be your legacy? That needs to be factored into the calculations.
How much money have you saved to-date plus what can you get from your business?
Your assets are where your income will (mostly) be coming from in retirement. You need a comprehensive personal net worth statement that includes an accurate and reliable business valuation. It is likely that your business is one of your most valuable assets. Your business may be the very best way to increase your net worth by increasing the market value of that business. So take a hard look at the business and its potential market value!
How Much Do I Need?
The investment firm Charles Schwab recently asked its customers what they think is enough money. They said that to be financially comfortable requires an average of $1.4 million. To be “wealthy” requires $2.4 million. The responses varied somewhat, but there’s no doubt, the older a person becomes more money they think they’ll need in today’s world.
What is Really Important?
Perhaps most importantly, most of the things that respondents said made them rich were not monetary at all – Like spending time with family or having more time for themselves, traveling, or doing something they enjoy. The first step is to do an Exit Plan, a plan that gets you thinking about all of these things.
We are business transition specialists. We help owners, family members, and advisors evaluate exit and succession options and implement plans to successfully transition businesses.
38 North Holly Avenue
Fox lake, IL, 60020
Main Line: 888.938.2975
Tim Foster's Direct Line: 724.518.0604
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