Why You Need a 5-Year Plan – 3 Steps You Can Take Now to Realize Your Goals
Today’s 50-something CEOs tend to have vague dreams of more fishing, traveling or sailing when they retire, but they don’t know when that might be so they haven’t begun planning for it.
That’s a mistake, say a trio of specialists: wealth management advisor Haitham “Hutch” Ashoo, CPA Jim Kohles, and estate planning attorney John Hartog.
“Whether you’re selling your company, passing it along to a successor or simply retiring, that’s a potentially irreversible life event – you’ve got just one chance to get it right,” says Ashoo, CEO of Pillar Wealth Management.
A 2012 survey of CEOs by executive search firm Witt/Kieffer found 71 percent of those aged 55 to 59 have no retirement plan, although 73 percent look forward to more recreational and leisure activities when they let go of the reins.
“A lot of baby boomers have the idea that they’re just going to work till they stop working,” says Kohles, chairman of RINA accountancy corporation. “If they hope to do certain things in retirement and maintain a certain lifestyle, they’re likely to end up disappointed.”
Planning for the transition from CEO to retiree should incorporate everything – including what happens to your assets after you’re gone, adds John Hartog of Hartog & Baer Trust and Estate Law.
“Many of my clients worry about what effects a large inheritance will have on their children – they want to continue parenting from the grave. You can, but should think hard about doing that,” he says.
The three say smart planning requires coordinating among all of your advisors; that’s the best way to avoid an irrevocable mistake. With that in mind, Ashoo, Kohles and Hartog offer these suggestions and considerations from their respective areas of expertise:
1. Ashoo: Identify your specific lifestyle goals for retirement, so you can plan for funding them. To determine how much money you’ll need, you have to have a clear picture of what you want, Ashoo says. Do you see yourself on your own yacht? Providing seed capital for your children to buy a business? Pursuing charitable endeavors?
Each goal will have a dollar amount attached, and you (or your advisor) can then determine whether it’s feasible and, if so, put together a financial plan.
“But you can’t just create a plan and forget it. You need to monitor its progress regularly and make adjustments to make sure you’re staying on course, just like you would if you were sailing or flying,” Ashoo says. “We run our clients’ plans quarterly.“
It’s also imperative that you don’t take any undue risks – that is, risks beyond what’s necessary to meet your goals, he says. “You may hear about a great investment opportunity and want in on it, but if you lose that money, you may not have a chance to make it up.”
2. Kohles: Don’t sell yourself short when selling your business. “If you’re banking on money from the sale of your business, know that it’s unlikely you’ll have investors just waiting with the cash for the chance to buy it when you’re ready to sell,” Kohles says.
Buyers are more likely to offer to pay over time from the company’s future earnings — which leaves the retired CEO with no control over the business and utterly reliant on the new owners to maintain its profitability.
A good alternative is to establish an S corporation combined with an employee stock ownership plan (ESOP), Kohles says.
“You’re selling the company to the employees while retaining control until you phase yourself completely out,” he says. “The ESOP doesn’t pay income taxes – the employees do when they retire. And you don’t pay taxes on the money or the stock that you contribute.”
3. Hartog: What do you want your kids’ inheritance to say? If you have children, this decision can change their lives for the better – or the worse.
“How your assets are disposed of should reflect your values,” Hartog says. “A lot of people prefer to think in terms of taxes at the expense of values. I advise against that.”
For children, incentive trusts can encourage, or discourage, certain behaviors.
“If you’re concerned your adult child won’t be productive if he has a lot of money, set up a trust that will make distributions equal to what the child earns himself,” Hartog says.
“Or, if you want to be supportive of a child who’s doing something socially responsible, like teaching in an impoverished area, you can set it up to pay twice his salary.”
There are many creative ways to establish trusts, Hartog says. Plan about five years out and change the trust as life events dictate.
Haitham “Hutch” Ashoo is the CEO of Pillar Wealth Management, LLC, in Walnut Creek, Calif. The firm specializes in client-centered wealth management for ultra affluent families.
Jim Kohles is chairman of the board of RINA accountancy corporation, Walnut Creek, Calif. A certified public accountant for more than 35 years, he specializes in business consulting, succession and retirement planning, and insurance.
John Hartog is a partner at Hartog & Baer Trust and Estate Law. A certified specialist in estate planning, trust and probate law, and taxation law, he has been selected to the Super Lawyers Top 100 list for nineconsecutive years.