Cash It In — Follow These Tips For a Comfortable Retirement

Without a pension or a hefty 401(k) savings plan, many shop owners rely on the sale of their business to enjoy their golden years.

Cash It In — Follow These Tips For a Comfortable Retirement

This could be you someday: You’ve spent your working life building up your firearms business. Your reputation for quality service has enabled you to build a strong base of customers and an even broader reputation in your market.

Now, you’re ready to retire and cash in. You’ve got a qualified buyer, the price seems right, and before you know it, you’re sitting on a windfall.

At long last, it’s time to work on your golf game, hang out with your grandkids, take those trips you’ve put off, or go help your local Habitat for Humanity group.

But first, you’ve got a little more hard work ahead. And if all this seems a long time off, don’t turn the page. There’s an important message here — even if selling your company feels like it’s decades off.

Managing Wealth

Selling a successful business comes with an unexpected responsibility: managing that newfound wealth.

Donald Kent is a principal with Bernstein, the private wealth management division of AB (formerly AllianceBernstein), a global investment firm. Bernstein, based in New York City, has offices in a dozen U.S. cities. His clients consist of families who have a high net worth of $1 million or more.

“Ultimately, I help people clarify their goals and develop an investment strategy that makes sense, given what they have now and what they want to achieve,” he says.

Many of his clients are small business owners who have just sold off their company. He’s found that many are smart about their business — but not so much about their personal finances.

As one recent client acknowledged: “For 30 years, he managed his business and did a good job,” Kent says. But managing his wealth after the sale, the man realized, “was really like running a business, and he knew nothing about it.”


Among the most common misconceptions Kent hears from new clients is the long-outdated belief that “you should be able to draw 5 percent a year from your assets and be OK.”

“Potentially that was true 20 years ago,” Kent says, and at first glance, “it seems reasonable.” But not anymore — for at least three reasons:

Reason No. 1: “People are living longer, and that means you need more money to sustain you over the long haul,” he points out.

Just do the math: You’re in your 60s, sell your business for $2 million in cash, park the money in a savings account and decide you’ll live on what seems like a reasonably comfortable $100,000 a year — good for a 20-year run.

Not so fast. “For a typical couple in their 60s today who are of normal health, there’s a 50 percent chance one of the two will still be alive at age 92,” Kent points out. “A couple at the age of 60 needs to plan for at least 30 years.” That once reliable 5 percent rule “almost for sure will lead them to bleeding their assets before they die.”

Reason No. 2: Inflation is calm — but it’s not at zero. So you’ll run out even faster.

“If you need $100,000 a year, five years from now that same lifestyle is going to cost you $110,000, or even $120,000,” he cautions. Assume a modest 3 percent annual inflation rate and you’ve reached the bottom in 16 years.

“But wait!” you may say. “Of course I won’t park my stash in a no-growth savings account! Look how Wall Street is booming!” Which brings us to ...

Reason No. 3: Despite the nearly eight-year upward trajectory of the stock markets, including recent record highs in the Dow Jones, the overall return on investments isn’t what it used to be.

“Historically, stocks have earned 10 to 12 percent per year, and bonds have earned 4 to 6 percent per year,” Kent says. “Probably you could pull 5 percent and maintain the level of your portfolio. We’re not in such an environment today.”

Current average growth is in the 6 to 8 percent range for equities and 2 to 3 percent range for bonds, he continues — and that’s likely to be the picture for the next 20 years. Bottom line? Even that handsome new nest egg can’t be counted on to support all of your years ahead. “And that can’t be solved by asset allocation alone,” Kent says. You’ll need other resources.



Explaining those realities to new clients can be a sobering conversation, but it’s also the start to helping them find a path forward to achieve their deepest goals and comfortably steward the fruits of their lifelong labors.

First is sorting out their current and anticipated expenses — and separating the essential ones from the frills. That isn’t a “one-size-fits-all” exercise: It requires exploring people’s deepest values.

“Helping the kids” — assuming the children are now adults and living their own lives — “you could say is discretionary,” Kent observes. “But in some families, it isn’t.”

Others may be committed to giving as much of their wealth as possible away to charity or to their religious institution. “They’d forgo a vacation to be able to contribute.”

Whether it’s travel, personal hobbies, community involvement, or any number of possible places to spend, the choices are practically infinite. It’s essential to set priorities and write a budget.

Even people accustomed to a disciplined spending plan in their business may have never lived by a household budget. For them, “coming up with that is the hardest part of the job.”


Planning Ahead

In short, when a windfall comes your way, you’ve got two tasks: to get a clear picture of how long it will really last, and to sort out a realistic plan to spend wisely and help it grow.

Better still, though, is being prepared.

At the very least, consider short-term preparation, Kent says. Plenty of his clients come to him after the sale, but he advocates enlisting a wealth management professional sooner than that — when you’re putting your business on the block, if not before. That way, he points out, you can manage your own expectations for the transaction.

Knowing how much you really need to recoup could motivate you to price your business more aggressively. At the very least, if you know upfront the limits of your prospective proceeds, you can start thinking about other resources to tap to help pay for your postretirement life.

Planning ahead doesn’t have to start there, however. If you’re still midcareer, or even just starting out, it’s not too soon to adopt simple strategies that will improve your endgame position:

  • If you’re not saving for retirement but consider the business equity to be your pension, chuck that idea pronto. Consult with your financial advisor, and establish a retirement account. As a business owner, you have several options. The tax advantages alone should be enough to motivate you.
  • Consider your business spending patterns. “Often, people with small businesses in lean years scrimp and they save, and in great years splurge to reward themselves for the tough years,” Kent says. If that’s you, work with your management team and your outside accountants to put more discipline in your business budget. Saving for a rainy day can also yield extra money for retirement, for example.
  • Enlist professional help — whether through a specialized wealth management firm, like Bernstein, or going to a fee-based financial planner. “Fee-based” is important: You want someone whose income doesn’t include incentives for you to purchase investment products, insurance policies or other such instruments from the planner’s business. And don’t be shy about asking direct questions so you know exactly what you’re getting.

Whether you’ve just sold your business, you’re getting ready to sell it, or you’re simply dreaming of that day years or even decades from now, it’s important to know that when it comes to how that act will change your financial life, you don’t have to go it alone.

Find a good advisor who can help you make sense of it — now and for the rest of your life. If for no other reason, just think how much more relaxing that kind of help can make your golf game.



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