A/B Conversations: CFP® Your Way Out Of It – Real Advice on Building Wealth & Retirement Planning

Ep #135 - I’m Selling My Business and Retiring. What Comes Next?

• Benjamin Haas I Haas Financial Group

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Business owners are usually a special combination of good planners and good executers. You have to be able to survive the rigors of business ownership! But what happens once you decide to sell your business and retire? It’s almost like surrendering control of your business AND your finances, and that can be really uncomfortable. What are the planning discussions that need to happen, and how do Adam and Ben address these different parts of the plan to help business owners confidently move into retirement? Listen in as they touch on multiple high-level discussions and what business owners could expect from them if they are ready to consider retirement.


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Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.

[00:00:00] Adam Werner: Hi everyone, and welcome to AB Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple certified financial planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts now.

[00:00:28] Ben Haas: Hi, Adam. 

[00:00:30] Adam Werner: Hey. 

[00:00:30] Ben Haas: How's it going? 

[00:00:32] Adam Werner: Going, how are you? 

[00:00:33] Ben Haas: It's going. Excellent. Just wonderful. Yeah, same. Same as last time we did this, I'm sure. 

[00:00:42] Adam Werner: Yeah.

[00:00:42] Ben Haas: Wake up, go to work, work hard, go home, run kids around, come back to work record podcasts. 

[00:00:48] Adam Werner: It's the phase of life that we are in. So, so, yeah. That's good and bad. 

[00:00:52] Ben Haas: Wouldn't trade it.

[00:00:54] Adam Werner: That's right. So today, yeah. 

[00:00:56] Ben Haas: Do you want to? I was gonna make what might be just a lame segue, like this is the busy time of life and you know, at some point in the next, I don't know, 15, 20 years, we'll be thinking about selling a business, and that ties into some recent client conversations we had.

So, do you wanna kick it off? You want me to kick it off? 

[00:01:15] Adam Werner: Sure. I'll go for it. Yeah, I think you said it right. We've had a few of these conversations recently of people that have owned a business, run a business for most of their life, and are now kind of grappling with, I'm wanting to retire.

I want more of the freedom of time. I don't wanna be beholden to this business anymore, and all of the stress that comes with that, and responsibility. But how do I actually take this illiquid asset, sell it. And that's one part of the equation. And we're not gonna spend a whole lot of time there, but let's just talk about it briefly, right?

There's prep work that needs to go into that. Hopefully there's a long enough runway to plan, do things strategically, make it an efficient process where it's feeling like you are transitioning from running a business to more of a slowed down retirement versus I'm just gonna make the decision like I'm jumping off a cliff now the business is sold, now what?

[00:02:11] Ben Haas: Yeah. 

[00:02:11] Adam Werner: And hopefully, have some more efficiencies built into the process. That is okay, I'm no longer gonna be running this business. I'm gonna sell it. I'm gonna have a liquidity event. I'm gonna have this money, but then how is that going to support me for my retirement? How do I take this money and turn it into income?

[00:02:30] Ben Haas: And I think what makes this whole conversation with a client like this, all the more difficult is to think about the degree of control that they've had their whole life over income. You know, they work hard. They create their own paychecks. They take what they want when they need it.

 This is a whole new realm of maybe just not feeling like they have control or not being exposed to things like, the stock market for all that time. You know, they're usually people that are more sensitive to taxation, 'cause they've had to really pay close attention on a quarterly basis to what am I paying in?

And, you know, they know, they've probably been coached, they've probably worked with somebody on the tax side that says, you know, when you sell your business, like we're gonna have to factor in these capital gains. It's gonna be ugly. So I just think there's, at least in our experience, there's an elevated level of just angst around this topic, and that's why we wanna talk about it today. 

[00:03:25] Adam Werner: Yeah. Yeah. And even something as so simple as just thinking about the taxes while someone is working and running that business. Something as simple as being able to control your expenses to some degree. 

 I had a really good income year. Are there capital expenditures that I can make to deduct, right? I'll increase my expenses at the end of the year to offset some of the income that I'm gonna have. Once somebody gets to retirement, we often get asked the question, right, I'm selling my business this year, or I'm retiring, what can I do to reduce my taxes?

[00:03:57] Adam Werner: And that list, once you don't own the business, that list is not very long. A lot of those loopholes have been closed. It's charitable deductions, it's maxing out tax deferral and retirement plans. Maybe there's some others that are more complex, but for the most part that level of wiggle room and flexibility kind of goes away too.

[00:04:17] Ben Haas: And this is maybe where, let's we'll keep it macro, right? That's kind of the goal here. It's not to get too deep into the weeds, but we could go off in a lot of different scenarios. The type of sale that is occurring is really important here, right? Is it a just a lump sum buyout? Are we talking from a partner?

Are we talking from private equity? Is this a succession plan with an employee with family? Are there installments as opposed to a lump sum check that's gonna have some impact on taxes, of course, but I think for the sake of where we want to go with this let's assume it was kind of that outright buy. Whether it was a complete buy of shares of the business or, whether it's a phased plan. But if we assume that, then let's maybe focus on what are the other things that we now need to talk through with them to help them develop some sort of quote unquote retirement plan where paychecks are able to be recreated.

[00:05:12] Adam Werner: Yeah. And oftentimes when we are approaching that, we're basically breaking it down into different, smaller chunks of time, right? Oh, yeah. 'cause they, that also, we'll say the year of sale or that kinda, that year of transition into retirement is going to look very different than maybe flash forward five years.

Everything is fully sold now you're just living off of the savings. That income plan, let's call it, or just that financial plan is a very different looking strategy. Over the course of the first couple years of retirement could be very different than five, 10 years into retirement.

Maybe those future years I think are a little bit, hopefully a little simpler. But I think just even approaching it that way, that coming up with the plan for years one through three is an important part of the process, and it's not that we're gonna set it on day one, and that's gonna be consistent for the next 30 years plus of somebody's life.

Just being able to break it down into very unique timeframes based on the moving pieces. 

[00:06:14] Ben Haas: So let's get maybe a little granular on two things that come to mind there. One, let's talk about their age and where healthcare is gonna come from, right? If they are pre-Medicare age, maybe they were used to getting their own healthcare likes not uncommon for the business to be a family business or, the spouse wasn't working somewhere where business owner was covered there. So they may have some experience going and getting their own healthcare, but certainly if they're pre 65, then the income that they're showing is clearly going to affect the premiums that they're going to pay.

Right? So year of sale may look very different than, are you now living off of the proceeds of the business, right? In some sort of non-qualified environment, where you can look kind of poor to start retirement and not have to have hefty premiums for healthcare. 

[00:07:02] Adam Werner: Yeah, and that's, so I'll go back to my earlier comment on a way to control taxes to some degree. If you were the business owner, you were buying your plan, your healthcare coverage through the business, you're deducting those costs. It kind of is what it is. Once you retire, if you have to go out and buy that exact same private plan, but you're no longer right, an employ an employer, that deductibility kind of goes away.

So yeah, that can have a huge impact on how much does somebody actually need in retirement from an income standpoint. Because we've seen the wide ranges of what private healthcare coverage can cost. So yes, I think that's a great one. 

[00:07:40] Ben Haas: Well, and it just interject one more thing there. You may be able to get creative, right?

 Let's talk about the specific situation where maybe the sale is internal, right? It's to an employer, to a family member, and you're gonna phase your way out. Maybe that's a good way to bridge your way to retirement, stay on as an employee, follow the rules on having healthcare coverage through the company, but get that. If there is a bridge here, let's just say from 62 to 65, you phase your way out in a way that is cost effective on that healthcare front before signing up for Medicare.

[00:08:12] Adam Werner: Yeah, that makes sense. And I guess the other part of that too, is thinking about those different kind of chunks of timeframe and healthcare being a huge one, I think for most people when they're thinking about retirement, right? But it's that pecking order of withdrawal.

So you kind of mentioned if we're living off of the savings or living off the proceeds of the business, hopefully in a non-retirement or non-qualified position, you can make yourself look income poor, but asset wealthy. Where yes, from a healthcare perspective that can lower your cost or maybe increase your tax credits to make that a little bit more reasonable from a cost perspective.

But even so that, again, taking that one step further, it's then depending how much I need, when we've talked about this, another podcast too. It's the three bucket theory, right? Having your short term needs, your medium term, and then your long term, your investments set up to support those different buckets.

But then even just where are you pulling money from can make a huge difference those first handful of years in retirement. Again, I think for the most part it comes down to taxation and being, hopefully being able to control that to a certain degree. But sometimes flip the switch the other direction.

It may mean taking retirement plan withdrawals, if the idea is to spread out maybe some future taxes. 'cause we've certainly seen this with some situations where yes, there's the business. Yes, there are a good amount of retirement assets, but there's really not a whole lot of in between. So at some point, for most people, it's gonna be age 73 when they're forced to take money out of their retirement accounts.

If they have a large retirement plan balance. Those RMDs can get pretty, large pretty quickly, where you lose some of that control over the taxation when these withdrawals are gonna be forced on you. So that pecking order of withdrawals can be, I'll put that in the same camp of what that may look like on day one.

Could be very different in year three, or year five,, year ten. So even just having some flexibility built in those different time periods, or at least have the game plan of here's where we're gonna go in this time period. Once we get over that hurdle, then we'll reassess. But then here will be our next pathway.

[00:10:31] Ben Haas: Yeah, for sure. Yeah. As you're saying that, I think also when we talk about pecking order of withdrawals in timelines, right? We want to think about time horizon. If somebody really does have this big liquidation event, the first question's gonna be, where am I putting this money?

Right. So we're also gonna have this deep conversation around risk. Because if you think about the profile of somebody, whether you are a business owner out there listening, or whether you know somebody, or have somebody close to you, you can probably create this profile of how they kind of attack risk. 

And I know that we, when we talk about it on a podcast, are thinking about investment risk. But you can think about like what it means for them to build a business from scratch and operate a business and be very thoughtful about how they spend money or what they do.

Strategy, strategy, strategy. Yeah. I think when we have to put them in the camp of saying, okay, now you've liquidated this thing that you've built, that you've very carefully built, and you maybe don't have as much experience like with a 401k or investing over time. Yeah, this is a huge psychological hurdle to go, how much risk am I actually gonna take with this portfolio knowing that I have to recreate these paychecks?

Right? You've, Ben and Adams have helped me determine, what needs to go where, but then actually physically writing that check to the investment account and seeing that balance move, daily, monthly, however, often they look at it like we've certainly experienced business owners that have a very difficult time with this.

[00:11:56] Adam Werner: It's very interesting to me, 'cause now even as you were saying, all of that, it's all about perspective when it comes to, to risk, and especially in the eyes of the business owner, because I think for many people on the outside looking at someone kind of running their own business and responsible for all of that, that feels risky, right?

But many business owners that we've talked to, the concept is, but I can control it. So I don't view that as much as a risk because at the end of the day, it falls on my shoulders. I can do what I need to do to make sure, sure, I cover what I need to cover and therefore. It's not necessarily as risky.

The flip side of that being, well now I don't have that level of control when I'm investing in stocks and bonds, and that feels, if it's completely outta my control, that feels like that's the riskiest thing in the world. I can't influence this. I can't cut back on expenses. I can't cut employees or change the approach to my business.

And that is where we do see some of that disconnect from just, it really is the psychology of it. And you mentioned it earlier that maybe they haven't had as much experience in the markets to see the ups and downs, to feel maybe the more visceral when the market is not doing well, how am I actually going to feel if all of my assets or the majority of my savings are now fluctuating with the markets and we all know how headlines work?

That can be a very difficult thing for someone who maybe hasn't had to rely on that part of their brain, right? That emotional side, they may not have that muscle trained. So it, it makes that transition even more difficult. 

[00:13:48] Ben Haas: Yeah. So takeaway there being the more time you have to kind of not only be educated, but to go through the different scenario planning that we would want to go through with them, the better off they're going to be.

Right? Yeah. When you think about planning a business, and I could speak for myself on this topic. Right? It, I think it's a, it's often hard to think in 10, 10 years out, 20 years out, right? Because so much with any business, feels like it can change on a regular basis. So, we almost have to have that opportunity to train somebody to think in the three bucket theory where the things that would make them comfortable, cash in the bank, CDs, things that are very low volatility, that this is going to support this chunk of the plan.

Like you said earlier, maybe it's just a two, three year window, and then there's other assets that are there really not to fluctuate to provide that income for the next five to seven years. We just need to help them kind of bucket the assets mentally too, where hopefully they can get themselves into a spot, just like any other retiree where the movements of the market, they're not affecting your paycheck.

We've planned on this volatility, we knew that things would go up and down. We certainly have struggled with certain business owners who feel like I just gotta put all the savings in the bank, and I know I'm not gonna earn a whole lot, but the idea of losing capital was not something they could stomach and I wish we would've had more time with, I'm thinking of those two cases, to really work with people and start to understand, hey, you need to make this investment in your business. As the example, hope for something that's going to be more long term for you. 

[00:15:19] Adam Werner: What comes to mind is that old saying, you know what got you here isn't necessarily what's gonna get you there.

That's a difficult, that's just a naturally difficult thing, right? When you've been so used to operating a certain way and now that approach completely shifts. We've seen it, we've seen those growing pains for better and for worse, where it makes it a difficult transition. So then maybe we'll pivot to kind of the, some of the other aspects of planning that maybe aren't that much different.

Whether it's just somebody looking to retire or they are a business owner looking to retire, it's the same idea of managing withdrawals. We kind of talked about with pecking order of savings or pecking order of withdrawals, planning for RMDs. At some point does it make sense to do some Roth conversions, right?

Try to take advantage of income tax brackets. The timing of social security certainly can factor into a lot of these other moving pieces too. And again, I don't think that is necessarily wildly different than other retirees that maybe haven't owned their own business. Another aspect would just be insurance planning.

We talked a little bit about the health insurance side of things, but life insurance and long-term care, maybe that's an area that hasn't necessarily been addressed. Or again we're seeing this with a lot of retirees and it is a very standard kind of idea that my need for life insurance probably goes down when I'm at retirement.

But that's where we've certainly seen that shift to old long-term care being a much more important focus. And there's different ways of going about that. But again, I think for a lot of people that may have just been so focused on the business, sometimes these other aspects of the financial life haven't necessarily been fully vetted or planned for.

[00:17:08] Ben Haas: Yeah, I think that's totally fair. And the last thing that I would, I point out there. Just through conversations that we've had, I think a lot of, more often than not, you see a business owner that if they've been doing it for a while, they have some success clearly in creating capital. The need to watch spending, kind of hasn't been there.

At least that's what we've seen. Business is a cash cow. It supports different things. That is deductible on a tax return. Now all of a sudden all of that goes away and you really, you have this one shot with this lump sum that you're liquidating from the business to make sure that's gonna support you the rest of your life.

I really do think it's a little bit of a harder exercise for these business owners to go through the process of saying, yeah, but what do I really need? What do I really want on an annual basis? And really making sure that sale price is gonna fit that. And if it doesn't, then again, we gotta have that conversation on what's gonna get cut? Are you gonna do something else to generate income? How does social security come in play there? 

[00:18:06] Adam Werner: I'll take that one step further. I'll give an example. Now, this other client is younger, but where we've seen people build a business like that, serial entrepreneurship, right?

 I'm gonna sell this business. I can't turn my brain off. So even if it means, okay, I'm gonna, I'm gonna come up with this amount of money from the sale of the business, but I'm gonna carve off a portion of that and that's going to be just my seed money for a future idea, or whatever that may be, to hopefully isolate from the rest of the plan that if, a business gets started and it doesn't go well, it's not having the domino effect of impacting every other part of your financial life, right? From an income perspective. So even something as simple as just putting some extra funds off to the side in a box that are earmarked for the next opportunity can be a powerful tool for those business owners too.

[00:19:00] Ben Haas: Agreed. So what would you say is the biggest takeaway here as we kind of summarize to work our way out of this podcast? If there's somebody listening that owns a business and is thinking about making that transition out in the next two to three years, what say you?

[00:19:15] Adam Werner: Talk to somebody, talk to us, get the ball rolling. Right? Because I mean, we've talked about so many different pieces and we've talked about this ad nauseum probably on this podcast. When it comes to planning, nothing happens in a vacuum. Any one variable or any one lever you can pull is going to affect many others.

So, start the conversation sooner than later so that if tweaks need to be made or if there are maneuvers or strategies that can be implemented to save on taxes or to set more money aside or just to start to build your buckets in a way that fits your situation, because that's all of it boils down to, this is so situational.

You could have two business owners liquidating for the same dollar amount, but have very different lifestyles, have very different needs, and those outcomes are gonna be very different. 

[00:20:05] Ben Haas: Yeah, and I'll piggyback on your comment. There's absolutely the need for the accountant in this situation.

There's the need for the attorney. In many cases we've worked with people who've had, employer plans, investment plans, but in each one of the cases we're talking about, they still felt like they needed somebody to connect the dots, and that's where a financial planner's gotta come into play.

So reach out. 

[00:20:27] Adam Werner: Yeah, that's why we're here. 

[00:20:29] Ben Haas: Thank you, sir. Hope you have a wonderful rest of your day. 

Thanks for leading this thing. 

You got it. 

[00:20:35] Adam Werner: See you next time.  

Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant, and financial advisor, or tax advisor prior to making any decisions or investing. Thanks for listening. 


Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.