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Traditional Retirement Is Changing: Plan for New Breed of 'Golden Years'

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By    |   Friday, 21 Jul 2017 07:28 AM

The other day, I sat down for a lunch meeting with a professional colleague who is an investment banker. We have known each other for many years and we recently worked together with two owners who sold a business for a substantial sum of money. The younger former owner is staying with the person who bought the business to help it grow even bigger and the older owner is retiring.

I asked my friend, the investment banker, how his business was doing, and he replied that purchases and sales of businesses were slow. He is involved in lots of discussions, but not much in the way of actual transactions. This surprised me as current economic conditions seem favorable to me for such activity.

Interest rates are relatively low for borrowers to finance such purchases, many corporations have excess cash on their balance sheets, many owners of small and middle market companies are older due to the national demographic, and tax rates are generally favorable for sellers.

So what’s holding business owners back from selling and going to work on their golf handicap full time? As we talked through this issue, some observations I have noticed started to surface. It seems that the traditional concept of retirement is changing from what it was a generation ago. So this change needs to be appreciated by financial advisors and institutions so as to provide relevant advice.

My observation has been that those who own their own business are less likely to retire full time than are those who work for someone else. There are both financial reasons and emotional reasons for this.

The financial reasons really boil down to the question, is there enough? Those who work for others are usually provided retirement plans that have been well defined years ago, offering them the opportunity to plan ahead for eventual retirement. The business owner, on the other hand, has typically viewed the value of the business as the primary source of retirement funding. And that value may have fluctuated greatly over the years.

The business owner also must replace that business value with after-tax proceeds from the sale of the business to fund their retirement. Many times, that value is simply not enough to fund a retirement lifestyle similar to their current lifestyle. Also, many times when the business owner has reached their 60s, or thereabouts, the business is in a mature versus a growth phase of its development.

The emotion component of this issue has to do with quality of life. Regardless of the complaining we may hear from some business owners, most really do enjoy what they do. The void that not working may present can scare them into not selling. Not having something to retire TO as opposed to retire FROM is the main consideration here.

Typically, these folks have sacrificed much in the way of outside interests in order to build the business.

So for these reasons, traditional retirement is changing, especially among the entrepreneur class. Longer life expectancies, life purpose, and the need for high levels of income all play into this mix. Understanding this new dynamic will be important for life and financial planning in the years ahead.

Patrick Renn, author of Finding Your Money’s Greater Purpose, has been a CERTIFIED FINANCIAL PLANNERTM for more than 35 years and holds a bachelor’s degree from in business administration from Villanova University and an MBA from Loyola College. Renn – who currently lives in Georgia – is the founder of Renn Wealth Management Group Inc. (www.patrickrenn.com), the former president of the Georgia Society of Certified Financial Planners and board chairman of the Georgia chapter of the International Association for Financial Planning. He was board chairman of the Georgia Special Olympics, is the current chair of the Day 1 Endowment and has served on countless other charitable and endowment boards.

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Traditional retirement is changing, especially among the entrepreneur class. Longer life expectancies, life purpose, and the need for high levels of income all play into this mix.
retirement, planning, wealth, savings
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2017-28-21
Friday, 21 Jul 2017 07:28 AM
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