By: Ken Watt, Financial Consultant, Senior Vice President, MFG Advisors.
In the first two installments of this series, Dave Bennett, Senior Vice President, and Kathleen Maroney, Senior Vice President, Manager of Government Assisted Lending, discussed preparing for the sale of a business and executing on the plan. In this final post we’ll discuss some things to think about post-sale and what you should look for in a financial advisor as you approach the next chapter of your life. As in the previous posts, this information is not intended as advice and cannot legally be presented as such.
The way your life as a business owner looks after the sale of your business depends on two sets of actions: those you take to prepare for retirement before the sale, and those you take after the transaction of selling your business has closed.
A lifelong retirement mindset
Ideally, the first set of actions you take have been in motion long before you reach out to an advisor about the sale of your company. By that I mean, you’ve been setting aside money each month to save for your retirement in a fund like an SEP IRA, a SIMPLE IRA, a Solo 401(k), a traditional or Roth IRA, or a defined benefit plan of some type.
Some business owners plow everything the business makes back into running it, with the expectation that the sale of the business will someday act as their retirement fund. But the saying “pay yourself first” applies as much to you as it does to any other employee. That means giving your retirement and savings goals first priority when it comes to what you pay yourself each month. Your accountant can set up automatic paycheck deductions the same way you do for your other employees.
In practice this can be difficult, since many business owners fall into the camp of viewing their business sale as their retirement fund. That may well be, but they should consider that they may not be able to cash out of their business, that their business isn’t worth as much as they’d hoped, or that they don’t own the real estate associated with the business. This makes the case for regular contributions to a retirement fund.
Creating an affordable lifestyle
Once the sale is complete and you have received the funds, an in-depth conversation with an advisor is a good idea. This conversation can cover:
Considerations like gifting and estate planning play into the overall plan as well, and often come up at this time. However, these are best handled by an estate attorney before being rolled into an overall financial plan.
Finding the right fit
When should you find a financial advisor? My answer to this question surprises some people, because the answer is always the same: earlier than you’d think.
I say this for a few reasons. First, as the financial advisory industry moves toward online self-service, the population of financial advisors is shrinking. According to one study1, 40% of Investment Advisor Representatives (IARs) plan to retire in the next decade. That means fewer advisors are taking on new business, so it makes sense to interview and find one sooner rather than later.
Second, if you have an income gap between your anticipated lifestyle and your likely asset scenario, it’s always better to know sooner, when time is on your side.
Third, you may need time to find an advisor you can trust and build a strong relationship with them. For some business owners it’s valuable to base your Registered Investment Advisor (RIA) decision on any or all of these criteria:
Facing reality
By some estimates, 73% of Americans (and 80% of men) consider themselves better-than-average drivers. This is statistically impossible, of course, but it reflects most advisors’ experience when presenting their recommendations to a client who thinks they are better prepared for retirement than the reality suggests. These reccomendations are usually a combination of Work Longer, Spend Less, and Save More. Not always what someone wants to hear after a lifetime spent building a business.
Business owners’ plans may not match reality for three reasons:
In the first two installments of this series, Dave Bennett, Senior Vice President, and Kathleen Maroney, Senior Vice President, Manager of Government Assisted Lending, discussed preparing for the sale of a business and executing on the plan. In this final post we’ll discuss some things to think about post-sale and what you should look for in a financial advisor as you approach the next chapter of your life. As in the previous posts, this information is not intended as advice and cannot legally be presented as such.
The way your life as a business owner looks after the sale of your business depends on two sets of actions: those you take to prepare for retirement before the sale, and those you take after the transaction of selling your business has closed.
A lifelong retirement mindset
Ideally, the first set of actions you take have been in motion long before you reach out to an advisor about the sale of your company. By that I mean, you’ve been setting aside money each month to save for your retirement in a fund like an SEP IRA, a SIMPLE IRA, a Solo 401(k), a traditional or Roth IRA, or a defined benefit plan of some type.
Some business owners plow everything the business makes back into running it, with the expectation that the sale of the business will someday act as their retirement fund. But the saying “pay yourself first” applies as much to you as it does to any other employee. That means giving your retirement and savings goals first priority when it comes to what you pay yourself each month. Your accountant can set up automatic paycheck deductions the same way you do for your other employees.
In practice this can be difficult, since many business owners fall into the camp of viewing their business sale as their retirement fund. That may well be, but they should consider that they may not be able to cash out of their business, that their business isn’t worth as much as they’d hoped, or that they don’t own the real estate associated with the business. This makes the case for regular contributions to a retirement fund.
Creating an affordable lifestyle
Once the sale is complete and you have received the funds, an in-depth conversation with an advisor is a good idea. This conversation can cover:
- Your anticipated lifestyle
- Likely scenarios for success based on age, health, financial obligations and other factors
- Tax implications
Considerations like gifting and estate planning play into the overall plan as well, and often come up at this time. However, these are best handled by an estate attorney before being rolled into an overall financial plan.
Finding the right fit
When should you find a financial advisor? My answer to this question surprises some people, because the answer is always the same: earlier than you’d think.
I say this for a few reasons. First, as the financial advisory industry moves toward online self-service, the population of financial advisors is shrinking. According to one study1, 40% of Investment Advisor Representatives (IARs) plan to retire in the next decade. That means fewer advisors are taking on new business, so it makes sense to interview and find one sooner rather than later.
Second, if you have an income gap between your anticipated lifestyle and your likely asset scenario, it’s always better to know sooner, when time is on your side.
Third, you may need time to find an advisor you can trust and build a strong relationship with them. For some business owners it’s valuable to base your Registered Investment Advisor (RIA) decision on any or all of these criteria:
- someone who has built a consistent reputation working in their role through multiple up-and-down economic cycles
- someone who has a vested interest in your success based on being affiliated with a bank rather than a third-party money manager
- someone working in an institution with a good track record
- someone who is local and easy to meet with in-person
- someone who is hands-on and transparent in the way they communicate
Facing reality
By some estimates, 73% of Americans (and 80% of men) consider themselves better-than-average drivers. This is statistically impossible, of course, but it reflects most advisors’ experience when presenting their recommendations to a client who thinks they are better prepared for retirement than the reality suggests. These reccomendations are usually a combination of Work Longer, Spend Less, and Save More. Not always what someone wants to hear after a lifetime spent building a business.
Business owners’ plans may not match reality for three reasons:
- We’re living longer. Most people correctly guess that the average life span in America is approximately 80 years, but fewer have the “longevity literacy” to know that life expectancy rises with age. As a recent report points out, at age 60 an American man today can expect to reach 82, and a woman, 85. This means the money you have accumulated has to stretch longer and work harder for you.
- Inflation is a real factor. Over the last three years, core inflation has averaged 4.55%. That means your investment returns over this period would have to get you to nearly 5% just to stay even. A more eye-opening way to think about it is that $52,000 of buying power in 2020 costs $59,420 today.
- Healthcare is always a wild card. Retirement tends to break out into stages. Someone who retires at 65 is likely to enjoy at least five years of relatively full activity, five years of settling down and doing less, and five years when health issues begin to define their lifestyle. This is also when expenses start to rise rapidly. Being prepared for these expenses well in advance is vitally important.
Disclosures
1 Holly Deaton, “Is Declining Advisor Headcount at a Tipping Point?” RIA Intel, June 29, 2022 The financial advisors of Middlesex Financial Group offer securities and advisory services through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth. Middlesex Financial Group and Middlesex Savings Bank are not a registered broker-dealer or Registered Investment Adviser. Middlesex Savings Bank and Commonwealth are separate and unaffiliated entities.
Middlesex Savings Bank and Commonwealth are engaged in a referral arrangement where Middlesex Savings Bank refers potential clients to Commonwealth. Middlesex Savings Bank receives a percentage of the commissions and fees, as applicable, received by Commonwealth resulting from these referrals. In instances where the Advisor is also an employee of Middlesex Savings Bank, Middlesex Savings Bank receives all such fees and commissions. These payments create a financial incentive for Middlesex Savings Bank to recommend Commonwealth over other firms where no compensation is received, resulting in a material conflict of interest. Middlesex Savings Bank is not a client of Commonwealth. Any testimonial made in connection with a referral may not be representative of the experience of others and is not a guarantee of future performance or success. To learn more about Commonwealth, search them wherever local business are reviewed.
| Not FDIC Insured | Not Bank Guaranteed | May Lose Value |
| Not Guaranteed by any Government Agency | Not a Bank Deposit | |
Not FDIC Insured | Not Bank Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank Deposit