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Does A Business Owner Ever Really Retire

Does A Business Owner Ever Really Retire

Business owners have a unique view of retirement because they look at retirement as some future event that happens to others – not to the business owner.

To understand this perspective, first consider how the employee, versus the owner, looks at retirement. When you’ve finished your job, completed your task, and earned the opportunity to leave, you’ve reached retirement. No matter how dedicated, the employee never “owned” the job. Even if they loved their career, when it’s over, they’re done. 

Now contrast this with the founder and owner of a business. The founder has spent a lifetime building their business, so to admit they’ll someday leave it almost feels like a defeat. They’re not just leaving a job they loved; they’re giving up the prized asset they created. So, when an advisor says to a business owner, “when are you going to retire?” it feels as if they’re saying, “when are you going to become insignificant?”

Realistically all business owners are in one way or another, going to leave their business. So the advisor needs to help the owner realize that an exit is inevitable, but it will go much smoother if that departure is properly planned for. An effective way to generate this realization is to discuss exit planning before bringing up the idea of retirement planning. With exit planning, you’re not talking about the founder’s lost status as an owner; you’re simply helping the owner think through how they’ll take the equity of a typically illiquid asset (the business) and convert it to a stream of payments. This conversion may come from a sale of the business, maxing out a pension plan, or using the business equity as a cash cow. Whatever the strategy, it’s a financial - versus emotional - consideration to begin with, and that’s easier for a business owner to accept. 

Even when you discuss exit planning with the business owner, they may be fairly reticent. The advisor may hear from the owner, “my exit plan is for them to carry me out in a gurney!” So be it, but the financial consideration remains: how do you convert business equity into something tangible as an asset? An asset for leisure as you age or a legacy for when you die. 

Another way to approach the retirement subject is to inquire when the owner wants to start the process of taking money from the business rather than plowing money into the business. Most founders have invested both time and money in the growth of their business. Even if they don’t ever see leaving their prized possession, they’ll reach a point where they want to enjoy the fruits of their labor. They may want a vacation home, money to travel, or tuition for their grandkids. The advisor can help with these subjects even if the owner doesn’t consider this retirement planning. So, for a business owner, an IRA is a travel fund, not a retirement account.

Call it what you may, but advisors can help a business owner retire – even if the owner thinks they’ll never retire.

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In today’s changing environment, the need for current, effective retirement income planning is greater than ever. Distinguish yourself with the Retirement Income Certified Professional® (RICP®) designation program at The American College of Financial Services, and provide meaningful and sustained value to your clients in their retirement years.

The RICP® program offers relevant solutions to modern retirement income planning scenarios ranging from the common to the complex. The College’s expert faculty continually update the RICP® curriculum to reflect the changing landscape of the financial services environment. To learn more about the RICP® program and our other education offerings, visit our designations and degrees page.