retirement planning

The Wall Street Journal ran a piece recently called, “The Economy Stole My Retirement.” They explained that the dreams of the small business owners who planned on selling their companies to fund their retirements were crushed. The article quoted the statistic that the median selling price for small businesses had dropped 25% from 2008 to $150,000 now. This means that those planning to retire on the profits of selling their businesses are now facing a more austere retirement.

Is the economy or the entrepreneur guilty?

I disagree with the WSJ. It wasn’t the economy that stole their retirement; it was their own planning. If someone told you he invested all of his long-term savings in the stock of a single, small, illiquid company, wouldn’t you tell him, “Hey, friend, don’t you think you should diversify? Don’t put all of your eggs in the same basket.”

I don’t want to be unsympathetic to business owners whose endeavors melted down. Quite the contrary, I salute those people who put their blood, sweat, and years of their life into building the bedrock of the country’s economic structure.

However, business owners must realize that planning to sell a business does not constitute a retirement plan. It is one thing to plan for retirement by withdrawing money from your business in the form of salary, pension, and savings. This is a great way of slowly and steadily building wealth over the years. If a business fails to supply enough cash flow for the owners to pull out profits on a regular basis, then they must seriously consider a new model for their business or else close up shop.

By setting aside funds on a regular basis to put into savings, you remove some of the mystery of the market, as you aren’t relying on a lump sum from the sale of the business to support your retirement. No one can predict what the economy will be like when you want to sell the business, so planning your entire retirement on the proceeds of selling your business may be even riskier than investing your entire portfolio in junk bonds.

Placing your financial security in the sale of one item is extremely risky, when the buyer determines the price of a sale.

Non-business owners also make the same mistake

If you aren’t a business owner, you can still make this same mistake. I’m referring to those folks who don’t save as much as they should over the years because they think they’ll be able to fund their retirement by relying on the one-time sale of a single item, be it real estate, an art collection, or other “valuable.”

If you own a small business, consider it only one part of your greater financial picture. Make sure that you have other assets to fund your future needs in the event that the sale of the business falls short of expectations. Learn more about how business owners can plan for their retirement, read this post.

Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.

Published December 1, 2012.

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