A business owner we worked with wanted to retire in 5 years. This owner was incredibly busy running their business (not working on the business) and most profits were being reinvested to grow the business value. In addition, there was a large amount of cash inside the business without any purpose. There was no coordination between personal goals and business goals to receive the most for the business sale and to generate the most income throughout retirement.

The Details:

  • They needed $5 million (based solely on an interest only retirement income plan) for $250,000 in income before taxes assuming a 5% withdrawal rate. This was the analysis done by their current financial advisor.
  • This was discovered by looking at the amount of income they withdrew from the business, and all personal expenses being funded by the business.
  • The amount of personal assets accumulated in 401(k), IRA, and investment accounts was $500k. This meant we needed to get $4.5 million for the business.
  • The business today was valued at $2 million (before capital gains tax).

What We Did:

  • We organized all business and personal finances into a tool called The Living Balance Sheet™.
  • The first step was to walk through our Retirement Income Planning Process to discuss what their personal financial plan looked like. This included:
    • Protection such as auto insurance, homeowners, long term care, life insurance, legal documents, business disability, etc.
    • Cash Flow and how they were accumulating assets onto their personal balance by utilizing the business.
    • How assets were being accumulated based on risk and tax status.
    • Modeled their retirement income based on what their plan looked like when we met.
    • Covered the risks such as market fluctuations, timing, taxes, and the need for additional money for unknown or unexpected expenses. The plan their financial advisor put together was an analysis of how their portfolios would react during these times along with a statistical probability of them running out of money before they passed away. The analysis wasn’t accompanied by a plan on how to deal with all of these factors.
  •  Walked through a retirement income approach we call Asset Specialization. This approach is meant to produce more income with less money by segmenting into 3 buckets for “needs”, “wants”, and “laters”.
  • Determined “dead cash” and new cash flow from the business that could be used to build up personal assets outside of the business, so they could rely less on the value of the business when retiring.
  • Reviewed assets that supported the risk of the business and how to build the most flexibility in retirement for unknown expenses, extra spending, and large purchases even when the markets are down.
  • Implemented a plan to generate additional income with less assets, less risk, less taxes, and more flexibility.
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