The Importance of Non-Financial Retirement Planning

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The Importance of Non-Financial Retirement Planning

Retirement planning has long been thought of as “save as much money as you can to live off of for 20-30 years.”  Great, you have the money set aside to survive 20-30
years… now what will you do for those three decades?  Partners at Next Chapter Lifestyle Advisors, Susan Latremoille and Marianne Oehser, provided some insights into planning the non-financial aspects of retirement.

The Personal Side of Retirement Planning

There are an abundance of retirement advisors that educate individuals on the financial aspects of their retirement planning. However, these advisors tend to neglect education about their client’s personal needs.  Especially for successful business owners, planning a comprehensive personal retirement lifestyle plan is paramount. Research collected for the Exit Planning Institute State of Owner Readiness Reports has indicated that owners are not likely to have a written plan for what they will do after they exit their business.

What will make for a fulfilling next act of your life? 

According to a 2020 Edward Jones and AgeWave study, 8% of people think of retirement as the beginning of the end of their life. However, 55% view retirement as a “new chapter in their life.”

Who Will You Be Without Your Business?

Susan Latremoille shared the story of a client who tried to fill the void created by selling his $100 million aerospace business by buying vacation homes and fancy cars. He was trying to, as Susan put it, “replace the thrill of running his business”, but it does not work that way.  As Marianne Oehser shared, “You are not just retiring from your career, you are retiring to the next phase of your life. Plan for it.” Latremoille and Oehser shared that 69% of people struggle to adjust to their new retirement life. In retirement, so many aspects of successful owners’ lives change. They go from being the “Who’s Who” in their respective industries, to “Who is that?” seemingly overnight. Many business owners are not prepared to address these changes and suffer an identity crisis. Being a business owner was their entire life, and now that part of them is gone.

Retirement Mindset Business owners might have had a growth mindset when it came to their business, but a fixed mindset in their retirement. In order to get the most out of your retirement, you must make that switch to a growth mindset. 

The Retirement Honeymoon

We have all heard the old trope of the retired business owner spending their days on the golf course and living a life of leisure. What we don’t hear is the fact that most retirees get bored of this lifestyle in 6-18 months. Susan Latremoille calls this the “Retirement Honeymoon.” Even retirees with an extensive bucket list of items to accomplish are not prepared for a successful retirement. What do you do when the last item on the list is checked?  Without a detailed lifestyle plan, your retirement will feel less like the long vacation you envisioned and more like Groundhog’s Day, forced to repeat the same day over and over again.  Latremoille and Oehser believe that every retiree thinks about retirement with one of two mindsets.

1. Fixed: The best years of my life are behind me. I am over
the figurative hill and the rest of my life will be downhill
from here.
2. Growth: The best is yet to come. I am looking forward
to experience this next chapter of my life.

Emerging Needs of Retiring Business Owners

Retiring business owners face more concerns than getting an early tee time on their favorite golf course.  Some of the most prominent issues they will face are the possibility of divorce, failing to fulfill their post business needs, and lacking personal fulfillment.  The Threat of “Gray Divorce” Retirement has a profound impact on married couples, specifically baby boomers. After years of focusing on their career, retired owners have likely spent more time with their spouses during retirement than they ever have. This can lead to tension in their relationship and can ultimately lead to “Gray Divorce”, divorce in couples over 50 years old. Marianne Oehser shares, “Often couples don’t talk about how their new life is going to unfold in retirement. When they are not on the same page, it creates friction in the relationship. The little things add up to create problems in the relationship.” Conversely, relationships can strengthen due to the increased time spent together. With the lack of time spent working on and in their business, retired owners have time to focus on their relationships with their spouses.

Working in Retirement

More individuals are looking to work during retirement.  After the “retirement honeymoon” is over, many retired  business owners crave the mental stimulation and problem solving that comes from work. Our 2021 New York City State of Owner Readiness report found that 36% of retired owners planned on becoming a business consultant, 36% plan on starting another business after they exited their previous company, and 58% plan to invest in another business or serve on a business’s board. Owners desire to make a contribution towards
an end goal. Going back to work offers them an outlet to do so.  Additionally, 51% of owners shared they planned on continued involvement in their business even after they retired. 31% stated they would continue on in an advisory capacity but would not take part in the day-to-day operation of the company and 15% said they would be available in a crisis situation. This shows just how ingrained an owner’s business is in their life.

  • Professional
  • Primary relationship
  • Family and friends
  • Giving back
  • Spiritual and emotional health
  • Leisure
  • Self-development
  • Health and aging

Are You Financially Prepared for Your Next Act?

What is Your Wealth Gap?

Your wealth gap is the difference between your current wealth and the amount you need in order to live the life you want. To understand your wealth gap, you need to investigate your personal goals and ambitions outside of the business. For example, an owner who wants to own a minor league baseball team in the next phase of their life will need more funds than an owner who wants to retire and live quietly on an old farm. Your goals, family, extended family, and personal ambitions should all be considered. Once identified, you can determine your wealth gap. Your net worth outside of the business plus the value of your company today equals your goal. In other words, if your goal was $10 million and you had $2 million of assets outside of the business, your wealth gap would be $8 million. Thus your company would need to be valued at at least $8 million to close
this gap. 

By understanding your personal goals, you have established how much money you will need in the next phase of your life. A phase that will not include your company. This establishes your wealth gap.

Personal Financial Planning

Financial planning provides comfort for business owners when deciding their next steps. It especially helps owners to determine what is possible for them after liquidating their business. Defining your financial needs in retirement is a different way of thinking about wealth and cash flow.  All exiting owners must plan for their financial futures outside of their business. Joe Strazzeri, Partner at Strazzeri Mancini, LLP, shares, “Through the owner’s financial advisor, a detailed model should be created to understand the financial needs of the family. Simply put, one should take the anticipated net worth after the sale, subtract any personal use assets that do not generate income, and calculate the yearly expense of those personal assets, debt service, ongoing spending rate, as well as a buffer for spending to understand if the net income-generating assets can support life after the sale.” 

Does the value of the business today fill your  wealth gap?

If the answer is “yes,” it is time to ask yourself, “Am I ready to sell my company, and should I?” 

If the answer is “no,” you need to go on a value-enhancement path where you can begin to grow value in your business by strengthening your intangible capitals.

“The age 65 rule of thumb is also losing meaning because retirement has become more of a process than an event. For many, the days of a retirement party, a gold watch, and a trip to the rocking chair are gone. Retirement may mean leaving your career job but picking up part-time work.” – Steve Parrish Co-Director, Retirement Income Center at The American College of Financial Services.

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