Legacy by Design LLC.

Cultivating Multigenerational Success in the Agricultural Community

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About Us

 •   •   •

For family business owners, our Comprehensive Succession SolutionTM includes planning for:   

Ownership Transitions

Retirement Options

Financial Security

Investment Strategies

Estate Tax Strategies

Buy/Sell Designs

Key Person Strategies

Equitable Distributions

 

Legacy by Design provides hometown service from
coast to coast.

  


Retirement: Let the Choice be Yours

By Kevin Spafford, CFP®
Founder - Legacy by Design, LLC

Many family business owners are dependent solely on the business to generate their income. When thinking about succession, the thought of losing that income stream can be a debilitating hindrance to a comprehensive plan. If you are completely dependent on the business to keep you afloat financially, it might be hard to see beyond your monetary concerns. 

The only way to alleviate these concerns will be by planning adequately and early enough for your retirement. You will have some options available to you. You can either retain an interest in your business, from which you can receive dividends or profit sharing. If this is your choice, you must have enough confidence in your successor to let him run the business as he sees fit. If you will constantly check up on him to ensure that your business and your interest is well looked after, you will never completely leave the business and hand over the reins. The second option will involve money generated as a result of a sale of the business. A sale of the business can be structured in any number of ways to ensure that you have retirement income when and where you need it. A final option relates to savings and investments set aside through the years. This last option will obviously require some planning and time. 

Four variables will determine the success or failure of any retirement plan: 

  • Contribution amount – How much money is being invested to fund the retirement plan? Should more money be contributed or can you contribute less and still satisfy your retirement objective? Is there a realistic factor for inflation considered in the accumulation goal? 
  • Time – Do you have enough time to reach the accumulation goal? Should you extend the time allotted for you to reach your goal or can it be shortened? Compound interest can have a profound effect in later years.
  • Return on investment – Considering the interest earned, dividends reinvested, and capital appreciation, is the rate of return optimal for the given level of risk? Should you consider accepting more risk in an effort to increase returns? How your earnings are taxed also plays an important part in your investment selection.
  • Accumulation goal – Is the goal attainable given the other three variables? Should the goal be changed based on the positive or negative effects of the other three variables? Would you realize more money from the sale of your business than originally planned?
As with the rest of succession planning, the earlier you start thinking about your retirement needs, the better off you will be. Take some time to calculate your retirement needs. On a sheet of paper write down your current expenses and projected retirement expenses. Look at all the aspects related to your current finances and projected future expenses. Remember that some costs may decrease with retirement (e.g. work clothing), while others will increase (e.g. travel and entertainment). Also keep in mind that inflation can have a devastating effect on retirement plans, so be sure to leave yourself some leeway. Finally, keep in mind that medical advancements have made retirement a much longer prospect these days than it used to be. Retirees these days can expect to live for 20 to 30 years after retirement. Just because your own father died at 67 doesn’t mean that you will as well. You have to plan adequately for an extended retirement. 

Retirement planning probably won’t be something that you can do by yourself. Most people just won’t have all the skills and experience necessary to effectively plan and execute what they have in mind. It is therefore recommended that you work closely with a trusted financial planner to ensure that your budgets are correct and that you can effectively use investments and other tools to plan for the future.

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