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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?
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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