Inflation Risk: The Silent Killer

hot air balloonInflation can erode purchasing power, cause volatility in stocks and bonds, devalue interest income of securities, and reduce profit margins of company stock.  Put simply, inflation is an ever-present risk. 

Recent predictions by Kiplinger expect inflation to reach 2.5 percent by the end of 2017—a year-over-year increase of 0.4 percent.  As cited by the Consumer Price Index, the average inflation rate has averaged roughly 3 percent since 1914.  At this rate, an investment portfolio’s value is cut in half every 23 years.

The core inflation rate (which does not include food and energy) is also expected to be higher by the end of 2017.  Inflation is increasing largely due to rising energy prices, which has prompted the Federal Reserve to raise interest rates by a quarter percentage point in March and twice again in the remaining months of 2017.

Cash on the Sidelines

Economic and political uncertainty has caused many risk-averse investors across the globe to stockpile cash instead of investing in financial markets.  And it amounts to a substantial chunk of change—approximately $50 trillion dollars is currently living out of the markets, which is more than we’ve seen sidelined since 2008.

What happens with that $50 trillion in cash will influence future market trends. Investors may choose to invest in gold or silver, or they may reinvest in stocks and bonds once the interest rates creep up.  Because we can’t be sure how future markets will react, investors need a strategy to shield themselves from inflation risk.

No Investment is the Worst Investment

Though stockpiling cash may seem temporarily appealing, doing so could result in lasting consequences.  While we expect market downturns to be followed by periods of recovery, deflation (or negative inflation) is quite uncommon. Thus, the effects of inflation are rarely reversed, and continue to penetrate any cash reserves you have…no matter how thick the vault walls.

From 1926 to 2016, inflation in the United States averaged 2.94 percent. This period of time, however, was not without its highs and lows.

From 1922 to 1935, inflation decreased at a rate of 2.6 percent per year, meaning that an item priced at $100 in 1922 cost only $77 in 1935. Alternatively, inflation rates saw a dramatic increase into the double digits, from 1972 to 1982. An item that cost $100 in 1972 cost over $229 in 1982—a time when inflation was averaging 8.7 percent.  

Over the long run, however, stocks will typically exceed inflation. According to a study by Dalbar, over a 10-year period ending December 2015, equity returns averaged 4.2 percent while inflation was at 1.9 percent; over a 20-year period, equity returns were at almost 4.7 percent while inflation was 2.2 percent.  This should further motivate investors to remain in the markets in order to preserve and grow asset value.

Invest with a Time Horizon in Mind

Despite historical highs and lows, inflation rates in the United States have been largely stable on average.  Knowing this, investors should assume a long term perspective with respect to investment risk, being mindful of their personal time horizon and when they might need to sell their assets.

All major asset classes such as stocks, bonds, and Treasury Bills showed very different returns over the short and long term. For example, from 1973 to 1982, stocks produced a cumulative real return of -16.85 percent.  Compare this to the period from 1926 to 2007, when stocks showed a cumulative real return of +882.37%.

Investors must be aware that there will be volatility in markets that will skew returns at certain points.  Rather than focusing on short-lived market waves, develop a strategy that protects you from the emotional biases of “jumping in and jumping out” of the markets, which can severely hinder long term returns.

Age, income, family dynamics, and other unique circumstances are all factors in developing a sound, comprehensive financial plan that considers all factors—investing, tax and estate planning, insurance and risk management, among others. Rather than playing a guessing game, and doing it alone, team up with a seasoned, fiduciary advisor who has your best interests in mind.

Tom Wilson, CFP® is a Senior Lead Advisor for JFS Wealth Advisors, a comprehensive financial planning and investment management firm with offices across Pennsylvania. With over 15 years of experience in the financial planning industry, Tom is dedicated to helping both individuals and businesses reach their financial planning goals through solution-oriented strategies.

Beware the 401(k) Penalty Tax

spring clean financesYou’ve probably heard that if you withdraw taxable amounts from your 401(k) or 403(b) plan before age 59½, you may be socked with a 10% early distribution penalty tax on top of the federal income taxes you’ll be required to pay. But did you know that the Internal Revenue Code contains quite a few exceptions that allow you to take penalty-free withdrawals before age 59½?

Sometimes age 59½ is really age 55…or age 50.

If you’ve reached age 55, you can take penalty-free withdrawals from your 401(k) plan after leaving your job if your employment ends during or after the year you reach age 55. This is one of the most important exceptions to the penalty tax. And if you’re a qualified public safety employee, this exception applies after you’ve reached age 50. You’re a qualified public safety employee if you provided police protection, firefighting services, or emergency medical services for a state or municipality, and you separated from service in or after the year you attained age 50.

Be careful, though. This exception applies only after you leave employment with the employer that sponsored the plan making the distribution. For example, if you worked for Employer A and quit at age 45, then took a job with Employer B and quit at age 55, only distributions from Employer B’s plan would be eligible for this exception. You’ll have to wait until age 59½ to take penalty-free withdrawals from Employer A’s plan, unless another exception applies.

Think periodic, not lump sums.

Another important exception to the penalty tax applies to “substantially equal periodic payments,” or SEPPs. This exception also applies only after you’ve stopped working for the employer that sponsored the plan. To take advantage of this exception, you must withdraw funds from your plan at least annually based on one of three rather complicated IRS-approved distribution methods.

Regardless of which method you choose, you generally can’t change or alter the payments for five years or until you reach age 59½, whichever occurs later. If you do modify the payments (for example, by taking amounts smaller or larger than required distributions or none at all), you’ll again wind up having to pay the 10% penalty tax on the taxable portion of all your pre-age 59½ SEPP distributions (unless another exception applies).

And more exceptions.

Distributions described below generally won’t be subject to the penalty tax even if you’re under age 59½ at the time of the payment.

  • Distributions from your plan up to the amount of your unreimbursed medical expenses for the year that exceed 10% of your adjusted gross income for that year
  • Distributions made as a result of your qualifying disability
  • Certain distributions to qualified military reservists called to active duty
  • Distributions made pursuant to a qualified domestic relations order (QDRO)
  • Distributions made to your beneficiary after your death, regardless of your beneficiary’s age

Keep in mind that the penalty tax applies only to taxable distributions, so tax-free rollovers of retirement assets are not subject to the penalty. Also note that the exceptions applicable to IRAs are similar to, but not identical to, the rules that apply to employer plans.

Source: Broadridge Investor Communication Solutions, Inc.


It’s College Acceptance Season. How Can Parents Help Fund Their Child’s Education Without Touching Their Nest Egg?

college 2Blink and your newborn is heading off to college. While an exciting milestone, it’s easily overshadowed by the looming fear of financial sacrifices. For many parents, especially those who started families in their 30s and 40s, saving for college and retirement at the same time is a nagging reality.

The average cost of college for the 2016 to 2017 academic year was over $24,000 for an in-state public college and over $49,000 for a private college[1]. Multiply that by the four years it takes to earn an undergraduate degree, and it’s easy to see why many parents consider tapping into their retirement savings to help foot the bill.

According to current research from Sallie Mae, only two out of five families have an actual college payment plan in place. As it turns out, having a strategy really does pay off—families who plan save 3.5 times more than non-planners, and the students from those families borrow one-third less[2].

Don’t know where to start?  Here are six strategies for funding college without digging into your hard-earned retirement fund.

1. Plan for 4 Years (or More)

From your child’s first step onto campus to their last step off stage with diploma in hand, you’re looking at a timeline of 4+ years. Changing majors, repeating classes, or taking time off for personal reasons also affect the prospects of a timely graduation. When planning your budget, look beyond freshman year alone—consider the total number of years expected, and plan accordingly.

When researching potential colleges and universities, look for schools with high four-year graduation rates. The fewer years your child spends in college, the less tuition, fees and related expenses you’ll incur.

2. Calculate the Savings at Home

There is at least one financial upside when sending your child to college—recouped living expenses.

Consider the cost of food, transportation, sports and activities, etc…which are all reduced when there’s one less person at home.  When building your college budget, don’t forget to factor these savings into your calculations.

3. Take Advantage of Tax Credits

Two tax credits that you may be eligible for are the American Opportunity Credit or the Lifetime Learning Credit.

For each of the four years, the American Opportunity Tax Credit allows deductions of the first $2,000 spent on education expenses and 25 percent of the next $2,000. In 2017, this credit begins to phase out at an adjusted gross income of $80,000 or less, or twice that if married and filing jointly.

Each year, for an unlimited number of years, the Lifetime Learning Credit provides a tax credit of up to $2,000 on the first $10,000 of college expenses.  In 2017, this credit begins to phase out for a single filer at $56,000, or double that if married and filing jointly.

If you do not qualify for either one of the above credits, you may be able to claim tax deductions for tuitions and fee payments; however, you cannot claim more than one of the listed educational tax benefits per student per year.  It’s best to check with your tax professional to see if you qualify for any of these tax strategies.

4. Complete the FAFSA, Regardless of Wealth

A common misconception: families in higher tax brackets shouldn’t bother filling out the Free Application for Federal Student Aid (FAFSA). But many are surprised to learn they don’t have to demonstrate need to qualify for federal assistance. Your income is only one part of the financial aid equation; the school’s cost of attendance, number of children in college, and the parents’ age also factor into how much aid your child is eligible for.

Federal student loans can provide up to $27,000 over four years with fixed interest rates and income-driven repayment plans not typically offered with more costly private loans. The US Department of Education also offers Direct PLUS loans for qualified borrowers with a healthy credit history. Among these options are Parent PLUS loans, which are federal student loans available to the parents of dependent undergraduate students.  To be eligible for either the Federal Student Loan program or PLUS loans, you must complete the FAFSA form for each year that a loan is needed.

5. Consider the Pros and Cons of Tapping Home Equity

Because of lower interest rates, a home equity loan is sometimes preferable to taking out a Parent PLUS loan. According to Consumer Reports, a Parent PLUS loan during the 2016 to 2017 school year had a fixed interest rate of 6.31 percent with an additional 4.28 percent loan fee. A $50,000 fixed-rate home equity loan currently has an interest rate below 4.8 percent[3]; significantly less than the PLUS rate in excess of 10 percent.

Even so, a home equity loan should not be assumed hastily. While home prices have since recovered from the housing bubble, it’s uncertain if prices will remain steady long-term. Consumer Reports suggests that total home loan borrowing should not exceed 60 percent of the home’s value so that, ideally, those over 50 can pay back the amount borrowed before they retire.

6. Spend Your 529 Carefully

Another popular option for college savers are 529 plans—tax-advantaged savings vehicles designed to fund qualified college expenses. These plans can be powerful savings tools, but it’s imperative to understand the ins and outs of how your plan works to fully reap its benefits.

Withdrawals from a 529 plan that are used to pay qualified higher education expenses are completely free of federal income tax and may also be exempt from state income tax. Withdrawals for non-qualified expenses, however, are subject to federal income tax and additional penalties.

Parents must also carefully budget how the funds in a 529 will be spread over the course of four years. Consider scholarships, grants, or other sources of aid before determining what you’ll need to withdraw each year.  Withdrawing funds too hastily, or too conservatively, may come with unintended consequences.

Other Alternatives

If necessary, you can also tap into your Roth IRA as a source of funding.  For parents under the age of 59 ½, you may be able to make a withdrawal free of penalties if the funds are used for qualified education expenses.  Before implementing this strategy, it’s best check with your tax professional.

In addition to the options discussed here, consider the value of having your student work over the summer or during the school year to help afford their education.  Doing this can build responsible habits and provide valuable experience that will prepare a student for the working world better than any college course.

Last but not least, look online for scholarships.  There are many great websites that can help you narrow down the scholarships for which your child may qualify.  If you have a motivated student, you may also want to look for schools that offer merit-based scholarships or awards.

Make An Educated Decision

If you’re feeling overwhelmed by the alternatives, or have specific questions pertaining to your family’s unique situation, get in touch with a Certified Financial Planner (CFP®).  An experienced advisor can help you weigh your options and develop a comprehensive plan and payment strategy that’s most appropriate for you and your college-bound child.

Barbara Glover, CFP® is an Advisor for JFS Wealth Advisors, an independent wealth management firm serving high-net worth individuals, families and professionals. She helps her clients achieve their financial goals by providing comprehensive investment and planning strategies designed to help build and protect their wealth. Questions about college funding strategies? Contact Barbara at


[1] What’s the Price Tag for a College Education?, 2017.

[2] How America Pays for College 2016, Sallie Mae® and Ipsos, 2017.

[3] Home Equity Loan Calculators,, 2017.





The Case for Investing in International Equities

globe-indonesia-equator-80467While domestic stock markets have been bullish since March 2009, with the S&P 500 Index up 281% from the start of that period, the same cannot be said for most international equities. Indeed, from the same March 2009 starting point, the MSCI Europe Asia Far East (EAFE) Index is up only 120%*. This disparity and trailing performance gap has led some investors to question an allocation to international equities. Yet, if you look beyond past performance to other important investment criteria, the case for investing in international equities – in both developed and emerging markets – is compelling for a number of reasons:

1. Market cycles and past outperformance

Comparing investment in international companies to investment in domestic companies historically shows many periods of international outperformance. Like most investments, international equities can be “in favor” or “out of favor,” depending on many factors. A well-diversified portfolio will always have winners and losers over most time periods. Periods of excess returns are often followed by periods of reduced returns, and no one can accurately or repeatedly predict when the cycles will shift. By maintaining a target allocation to international equites, our clients benefit when we add or withdraw from their portfolio, or when we rebalance back to target allocation. While international equities have risen less during this cycle, our balanced approach results in buying proportionately more of the asset class while at lower costs. This, in other words, is “buying low.” Alternatively, we tend to sell what has risen more; this refers to “selling high.”

2. Relative value and economic factors

When comparing valuation measures of domestic versus foreign companies, a key driver of stock value is the company’s earnings. As global economies have recovered since 2009, company earnings have also risen, supporting the rising stock prices. Foreign companies, when grouped together at the end of 2016, were earning more per dollar of share price than the domestic company group. This translates to better value. Foreign economies also had stronger forward looking growth indicators, signaling an earlier position in the economic cycle than the more mature US cycle. This results in another plus – strengthening economies.

3. Trade deficits and currency swings

For many decades, the US has run a large trade deficit. We pay for imports with US dollars, flooding the world with our currency. Due to our perceived relative strength on the global stage, the dollar’s value has not declined as one would expect relative to the basket of other global currencies. Should this perception change, the dollar could weaken. Portfolio ownership of foreign stocks is typically accomplished by managers in the local currency. If the currency of those countries in which we invest strengthens (or the dollar weakens), portfolios receive the benefit in the form of higher rates of returns on the foreign holdings when converted back to dollars. This also runs in cycles, and for some time, the trend has been working in favor of dollar denominated assets and against foreign denominated assets. This trend should change in time, giving a boost to foreign investing.

We all know that “past returns are no indication of future returns” and that attention is best focused on determining and setting the appropriate strategy for you, maintaining a well-diversified, low cost, tax efficient portfolio, and investing in all regions and sectors of the world. Relative valuations today in international and emerging market stocks are cheaper than in the US, and forecasted GDP growth rates are higher for many regions outside of the United States. In the next cycle, market and currency swings may well move in favor of international equities. These are compelling reasons for continuing to invest in them.

*Return data for the S&P 500 Index and the MSCI Europe Asia Far East (EAFE) Index reflect returns from 3/1/2009—2/28/2017.



Have You Saved Enough for Retirement? How Do You Know?

golfRetirement should be free of financial worries. It should be a time to invest in that 46-inch SuperMag driver and spend the time on the golf course you promised yourself years ago. Or maybe it’s the time to savor your passion for fishing, or travel to see people and places that bring you joy.

But before you plan your first 18 holes at a Florida winter retreat, or make your blissful travel plans, plan to check in with a seasoned Certified Financial Planner (CFP®) or CPA. You might see a curve ball coming in your direction instead of a long drive headed down the first fairway.

Financial markets, interest rates, political climate, global events—the economy is constantly changing by a number of factors that could impact your financial outlook. But despite the clear inability to predict future events, we all have more control than we think … if we consult a competent advisor to help us plan for twists and turns in the road ahead.

Seeking advice from an expert who can analyze the past, present, and future financial climate alongside your personal situation will help you develop the blueprint and map to achieve your retirement goals. Sure, an annual review with a trusted advisor will be an investment in the short term, but long term, research suggests that you could see a significant return on what you’ve invested to get the right answers.

Still not convinced?  Here are a few potential factors that could affect your retirement savings—and what you can do about them.

The Rising Cost of Retirement

How can your retirement plans be derailed if you’ve been saving all along? Consider this: whatever amount you estimated needing for retirement 20 years ago is most likely much different today. Circumstances changed along the way, and expenses for retirees are higher than ever—they’re living longer, paying more for healthcare, housing, and everything in between. What’s more? Future investment returns are expected to be lower.

According to a new report by the Social Science Research Network, the demand for stocks since 1980 has caused expected returns to fall below their historical average. A decrease in bond yields means that the price of one dollar of income for a retiring individual is twice as high today as it was in 2000. In order to combat these tides of uncertainty, it’s imperative to increase the amount that you’re saving, or modify your expectations for what retirement might look like for you.

Changes in Health Care

There are also imminent changes expected in the health care system. As politicians discuss the proposed repeal or replacement of the Affordable Care Act, the outcome of that decision could have a significant impact on those with Obamacare plans and those on Medicare.

Time reports that Medicare could be cut in order to fund an Affordable Care replacement. Obamacare levied additional income taxes on higher earners rather than trim benefits for Medicare recipients. Retirees and beneficiaries of Medicare may soon find that free preventive screenings such as mammograms or colonoscopies disappear and higher prescription drug costs begin eating into their savings.

Predicting Income Needs

There are quite a few alarming statistics when looking at today’s workers’ ability to retire. This Washington Post study finds only about 10 percent of people retired because they had built up sufficient savings, but almost 50 percent of people retired earlier than planned because of circumstances beyond their control. In many cases, older workers face health problems or disabilities that impede their capacity to sustain mental or physical requirements of their job.

Other factors can also greatly impact how much income you’ll need to preserve your desired lifestyle in retirement. Your spouse may pass away unexpectedly, or you may find yourself sandwiched between your kids’ and parents’ financial difficulties. Sitting down with an advisor regularly will help you assess the individual risks you face and determine whether your insurance coverage and emergency funds are sufficient.

Navigating the Path to Retirement

However number savvy you think you may be, it’s well worth having an experienced professional by your side. Your retirement horizon, current needs, potential changes, tax and investing needs, and estate planning considerations conjoin in complex ways to create a variety of potential outcomes and opportunities you might not foresee.

Think of a financial planning professional as your personal GPS; they’ll continuously determine your financial “geolocation” and recommend the best route to arrive at your destination. The knowledge, tools and resources inherent to a qualified and competent advisor (as well as their experience of financial terrain) allow them to foresee the potential hazards or delays that may hinder your retirement designs.

Turning a Curve Ball into a Hole-in-One

Bad decisions occur when they are made under duress. Good decisions are borne from the confidence in knowing you’ve left no stone unturned. The combination of intention (what do I want to achieve?) and attention (how can I achieve it?) will consistently produce the best outcomes.

Whether you’re starting from scratch or revisiting a current plan, make sure you’ve done all you can to secure your future wealth. While money can’t buy happiness, a solid retirement plan will allow you to sleep much better at night.

Lou Colella, CFP®, CPA/PFS is Managing Principal and Senior Lead Advisor for JFS Wealth Advisors, an independent wealth management firm providing comprehensive financial planning for high net worth individuals, families and professionals. Need help navigating your personal financial needs? Contact Lou at





Why Your Retirement Plan for Employees Is Falling Short

Is your retirement plan for employees falling short?  Is your participation rate stagnant?  Is your HR department besieged by questions that deserve the attention of a financial advisor?

Beautiful woman working at the computer

If so, you’re not alone… A lot of companies are failing to engage people in the retirement planning process—or else failing to deliver the proper resources and education when employees raise their hands for help.  Consider these stats from the Society of Human Resource Management:

  • 52% of U.S. employees surveyed say they don’t have the time, the interest, or the knowledge to manage their 401(k).
  • 56% do not review the plan-related materials they receive.
  • 83% would like to receive professional investment management advice via their employer[i].

1. How to define retirement goals

Right now many working Americans are simply estimating how much they’ll need to save, without looking at concrete numbers and lifestyle expectations. According to a 2015 survey cited in The Wall Street Journal, respondents ages 55 to 64 said they expected to have about $45,000 in annual retirement income.  But the amount they had saved would only provide an estimated $9,129—a potential $36,371 gap.

If your employees lack a clear sense of where they need to be, and where they actually are right now, the whole process of retirement savings begins to feel abstract.  It makes it easier to put off plan enrollment, or continue to make inadequate contributions.

2. How to save more

Let’s face it—money that isn’t otherwise diverted gets spent.  Regardless of how well-off your employees and their families are, they will find ways to use the “disposable” income that isn’t automatically channeled into a 401(k), a 529 plan, an emergency savings fund, etc.

Employers that provide educational sessions on debt management, college savings, and household budgeting can make a big difference in helping their teams prepare.  Likewise, automation features can be used to help employees save more—so long as you educate people about default contribution percentages.  In some cases, it might make sense to offer automatic enrollment and automatic escalation on the default contribution percentage.

3. How to maximize Social Security and Medicare benefits

Most Americans don’t understand the different claiming strategies or timing factors that affect their Social Security benefits.  And it’s no wonder.  While the original Social Security Act of 1935 was 29 pages long, the current version requires nearly 2,600 printed pages.  Some workers (50% of Gen Xers and 51% of Millennials, according to Pew survey data) don’t even have faith these benefits will still exist when they’re ready to retire.

Still, for older workers,  it’s important to provide some informational content on Social Security:  individual, spousal, and survivor benefits—in terms of application timelines, collection methods, and taxation strategies.  Helping them prepare early for a phased retirement or a planned exit is beneficial to your organization as well, as it facilitates succession planning, recruitment efforts, etc.

The rising cost of healthcare is another growing concern.  Gaps in the Medicare program mean today’s families need to have a solid plan in place.  Companies should work with a retirement plan provider who can help employees answer questions like:  Have I budgeted enough for deductibles, co-pays, and premiums?  How will I afford long-term care?  Do I have the right types and levels of insurance?

Bottom line: educating employees is more than just your fiduciary responsibility as a plan sponsor.  It’s also a smart way to attract and retain the very best talent.  If you think your retirement plan design (or your plan provider) has room for improvement, feel free to contact our Business Retirement Plan Management experts for a fresh perspective. 


The ABCs of Choosing a Small Business Financial Advisor

The ABCs of Choosing a Small Business Financial AdvisorAccording to research cited by American Express Open Forum, 60 percent of small business owners surveyed have not consulted with a financial advisor. Consequently, 75 percent lack a formal plan for transitioning their business, while 30 percent still haven’t calculated how big of a nest egg they’ll require in retirement.

Do you recognize yourself in any of these statistics? If so, the following post explains why you need a small business financial advisor in your corner. I’ve spelled out a few key terms that highlight when, where, and how skilled advisors can round out your SMB team. Put them to memory today…

A – Advocacy

A small business financial advisor is an advocate for you, the business owner. As the company CEO, you may have mixed interests, but your advisor should be completely biased in your favor—helping you maximize the value of your business and leverage it as a primary source of wealth. Part of your advisor’s work may include dealing with your partners’ mixed interests, as well.  When advisors put you first, all of their advice is geared toward your success.

In this way, advisors help you represent your interests in business planning conversations and decisions. They contextualize personal gain versus company cost—particularly in areas like insurance planning, healthcare, and retirement benefits. An advisor can outline what kind of goals the company needs to achieve in order to align with your personal goals. Ultimately, those personal goals should define company targets.

B – Balance

As you well know, being a business owner is a risky proposition. It’s also fraught with emotion. From the inside, many owners have trouble maintaining their objectivity and not over-investing in their own passion project.

A good financial advisor understands the interplay of all the different assets you hold; your business is just one of them. He or she will perform the delicate balancing act of assessing business risks, diversifying your investments, and building wealth strategically. Because once you’re able to view your business in perspective, you’ll be better prepared to dispose of it in the right way.

C – Centers of Influence

Finding a highly-qualified business financial advisor is rarely as simple as an online search. You need to get validation from someone you trust. Professionals in close proximity are a great starting point: your CPA, your attorney, your insurance agent, or anyone who works with other business owners and can recognize your situation. Sometimes even your competitors are good people to tap for financial advisor referrals.  

D – Delayed Planning

Why do so many business owners put off succession planning—or getting personal financial advice for that matter? According to a 2015 U.S. Trust survey, the reasons break down as follows:

  • 54% have no intention of retiring in the near future
  • 23% haven’t made any conclusive succession plan decisions
  • 15% think it’s enough that family and colleagues are aware of their plans

If your plan is to keep working until fate determines you can’t, you may be severely limiting your options—including the ability to develop succession from within.

The longer the timeline, the more options you have. From a customer retention perspective, it’s much riskier to merge or sell. So if your objective is to keep the company intact and thriving, you’ll want to allow yourself time to groom a successor. Even if you plan to sell, ample lead time is a huge asset. Without it, you may lose negotiating leverage. You could be forced to accept a less suitable partner or a lower price.

E – Experience

Finding an advisor with experience in your industry is certainly helpful.  You want someone with proven business acumen and personal wealth management expertise. But knowing the specific line of business is not necessarily as important as understanding the customer relationships involved. Good advisors also understand professionals serving people—accountants, lawyers, engineers, etc. In forming a succession plan, they have very different challenges than a manufacturing company, for example. 

F – Fifty

What’s so significant about turning 50? If you’re a business owner, it’s a good benchmark for when to start enacting your succession plan. That’s because it typically takes five to ten years to replace talent and assets, and essentially to make yourself obsolete. Your first choice for successor may not work out. You need roughly a decade to know if you have the right person, then a transition period of five years or more to bow out gracefully. And yet according to a 2015 survey from U.S. Trust, 60 percent of affluent business owners—over the age of 50—do not have a succession plan in place.

G – Growth

In an ideal world business owners would get expert advice from the very beginning, during the capitalization process, to understand the benefits and drawbacks of self-funding versus equity or debt financing. All too often this doesn’t happen, leaving business owners to work for free and continue investing huge amounts of sweat equity.

If your business got off the ground via bootstrapping, you’re overdue to bring in a small business financial advisor, someone who can help you plan for the next organizational milestone. An experienced professional can advise you on when it makes sense to carve out a salary for yourself, hire for key roles, grow more aggressively, and most important: on how to make the most of your business as an asset in retirement.

Learn more about our wealth management services and the history of our team today. Because when it comes to owning a business and planning for retirement, the old adage has never been truer: time is money…