Retirement – what are the considerations?

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In my role as a financial planner I meet clients with all different sets of circumstances and plan for when and how they intend to retire.

However, when it comes to those who are running a business, two particular scenarios are often prevalent. These are:

  1. They are too busy running the business to give their retirement adequate consideration
  2. They see their business as their pension.

There is little that can be said about the first of these scenarios, other than to highlight the importance of setting aside the time that this really warrants. Therefore, I will concentrate on the second point.

Whilst I see some merit in this approach, my concerns around it are that all too often too little thought has gone into it. What will happen to the business upon their exit and how will they extract capital and/or income?

For example, I recently met two partners, both in their mid-60s and running a profitable professional services business which they have built up over the past 30 years. Both would love to retire in the near future. They could sell it but the problem is, without them the business is worth a fraction of the value they believe it is worth because they are critical to the business.

In the past they have tried recruiting staff with the viewpoint that they will take the business over in the future, however, that has never worked out.

As a result, they are now faced with the issue of having too much of their wealth tied up in an asset which they cannot afford to walk away from. Despite their success, they cannot realise their own personal objectives.

The main message here is to have a plan and, ideally, one which does not rely on one eventuality, such as the eventual sale of the business to a yet unknown party.

Your plan should include systems and processes which enable the business to be run independently of the principals-in-charge. In my opinion diversifying your wealth via different arrangements is key. In addition to the proceeds of a business, income can be supplied from a variety of sources, so it may be worth considering re-directing some of your profits to pensions, ISAs, or property, to name just a few of the options available.

If you would like to discuss your plans for exit and retirement in further detail please contact me.

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