For the Business Owner: Are You Prepared for Retirement? Is Your Business?


-  A  D  V  E  R  T  I  S  E  M  E  N  T  -

Reuben Rashty, Managing Director, Fifth Third Private Bank in Birmingham

Whether you’re two years from retirement or 20, you should be taking advantage of your skills and experience to ensure great outcomes, both for your own financial situation and the team you manage.

Here are three key moves that should be front and center:

Know (as much as you can) what to realistically expect in the years ahead

Anticipating, and accurately projecting, what you’ll be spending in retirement is essential to the planning process.

You’ve no doubt heard the news: We are now living in an unprecedented era of longer lives. Longevity concerns are increasingly impacting retirement planning. Barring significant health concerns, you and/or your life partner could be one of the fortunate who live well into their 90s.

That’s why you need to tackle spending projections with a sufficiently long time horizon. You should work with a financial advisor who can help you create a realistic scenario analysis. This includes both an analysis to determine worst-case projections, and a clear projection of your anticipated spending.

Drilling deeply to accurately get at that spending projection is critical, particularly if your goal is to maintain your current lifestyle well into retirement. A painstaking planning process should yield clear answers and prompt further questions. With the change in income-generated resources will come more free time. How are you envisioning spending it? Will any of your plans require financial investment?

Financially, the bottom line is determining whether your projected retirement timing, risk tolerance, and market-return expectations will generate sufficient retirement resources for every spending scenario, including insuring against the unexpected. Along with this should be any legacies you envision. This is tricky stuff, as estimates of asset returns and unexpected liabilities are capable of changing without notice. Leverage your wealth management network to help you assess any blind spots and mitigate risk.

Optimize your financial resources

Concurrent with gaining a clear idea of how much you’ll need to sock away, you should be scrutinizing your current tax-advantaged positioning along with your overall investment allocations. Not only do you want to be in the best position to reduce taxes—you also need to make sure you’re not taking on more risk than you reasonably should.

Here are some important areas of focus:

Tax-advantaged savings programs. Are you currently optimizing all the programs available to you, including 401ks and after-tax vehicles like Roths? If you’re a high earner ineligible for a Roth, have you looked at a back-door Roth? Backdoor Roths were made possible by a 2010 change in tax law that enables taxpayers to contribute to a traditional IRA and then immediately convert it to a Roth. Ask your financial advisor whether this strategy would benefit you.

Deferred compensation. Clearly a non-qualified deferred compensation plan (NQDC) enables you to postpone paying income taxes on this compensation until you’ve retired into a (presumably) lower tax bracket. As a high-earning executive, if you haven’t already taken advantage of any NQDC plan offered by your company, consider getting started right away. Already have a NQDC? Then a review of its investment positioning, along with your scheduled distributions post-retirement, is in order. Just keep in mind that changes in election allowed by the IRS require plenty of lead time.

Company ownership compensation. Tax treatment of stock-based and equity-ownership compensation varies by the type of vehicle as well your projected timing for exercising options or selling company shares. It’s important to consult with your tax advisor to take full advantage of these holdings.

Diversification—and risk. Be clear on how holding a large percentage of your company stock in your portfolio poses risk. Volatility risk increases as you near (and are in) retirement, and outsized holdings can exacerbate that risk. You should be implementing a strategy for diversifying any of these holdings, particularly if you’ll be depending on those assets to help fund your retirement.

Mentor a phenomenal successor

Have you determined who is best suited to take over your role once you retire?

Preparing your successor requires adequate time for them to grow into the role. As you take this on, consider yourself as both mentor and coach: Don’t shy away from specific feedback, including the leadership qualities she or he should be developing. Be sure to provide opportunities for your successor to work alongside other members of your executive team on critical projects. Fostering relationships with all stakeholders, particularly with strategic partners, is essential. Consider transferring responsibility for these key relationships relatively early into the process.

How challenging it may be to choose and prepare your successor can depend on the culture of your organization. Has mentoring been a part of your company’s ongoing leadership practices? If not, it’s never too late to encourage the kind of collaborative culture that supports leaders in mentoring and developing the next generation.

One last point: Your business exit is also a launch into your life’s next challenges. As you prepare your exit strategy, consider what you’d like to take on in retirement. Your larger community can benefit from your hard-earned business expertise—such as board service and mentoring. If you’re planning on many long and gratifying years, you should be thinking about how you’ll invest your human capital, too.

300 Park, Suite 300
Birmingham, MI 48009


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