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Managing Retirement Assets for Business Owners

Gary Pittsford, CFP®

Director of Financial Education

Last Updated
October 31, 2022
Portrait of confident senior male business owner

Some successful business owners have increased their net worth over the last 20 to 30 years by growing their closely held family business. When it’s time to retire and transfer the business to the next generation, or sell it to someone outside the family, managing retirement income can be complicated.

You may be an owner of a closely held business, where  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 where your business is located.

As you begin to plan for retirement, you need to be thinking about how you’re going to have a secure income and protect your net worth for your significant other and future generations.

Business Retirement Income

When you get ready to transfer or sell your business, there are many retirement income options for you to consider.

If you’re selling or transferring your company to the next generation, you have many choices for tailoring retirement income and other benefits. Consider ideas such as remaining on the company’s board of directors, selling goodwill, signing a non-compete agreement, entering into a consulting contract, arranging deferred compensation, etc. Some of these 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 talk to your financial advisor and accountant. You’ll want to consider different strategies to help reduce your taxes that will be acceptable to the buyer as well. As an example, if you own the real estate where the business is located, you could continue to rent the real estate for several more years. For many individuals, rental income is an excellent source of retirement income.

Personal Retirement Income

If you’re older than 59½ when selling your business, one of the decisions you’ll need to make is how to manage your net worth in the future. This includes protecting your liquid assets – your IRA account, your personal investments, the cash you received from selling the company and any personal savings you’ve accumulated.

Over the years, you’ve likely focused on investing your assets for growth. Now it’s time to start thinking about replacing the salary that’s going away as you sell the company (while also protecting 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. Once you no longer own your company, that strategy will no longer work. I suggest working 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

As it was in your business, in retirement it’s imperative to surround yourself with the some of the best accountants, attorneys and family financial advisors you can find to help you manage your total net worth. All those advisors you worked with when you had your company were totally committed to doing what was best for you, and they were all independent. Now that you’re managing liquid assets, you still want to make sure all your advisors are knowledgeable, have a proven track record and are completely independent in order to provide the advice you need to protect your assets for not only your retirement years but also future generations.

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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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