Courtesy of Benchmark Income Group

Finance

Making Your Money Work, Even When You Don’t

Benchmark Income Group owner Mary Lyons on how to protect your financial legacy after exiting your business.

As entrepreneurs, we pour our blood, sweat, and tears into building our companies. We make sacrifices. We devote ourselves to growth and progress.

We scale through determination, working with purpose, and grit. It’s a way of life, not a 9-to-5 gig. But when we finally hit that magic exit and sell our companies, we frequently leave money on the table—not just in our exit but in our long-term strategies.

Why? Because advisers tend to think primarily about managing your net worth, not about optimizing your income strategies. The rate of return (accumulation/growth) and distribution rate (income) are two very different things. You built your business because you saw space for doing things a better way. You weren’t happy with the status quo. Don’t forget those same principles when it comes to managing your wealth. Creativity is a necessity for long-term improvement.

Here are three tips on how to increase income from your assets once you exit.

  1. Don’t settle. The generally accepted rule for safe withdrawals in retirement is 3 percent of your total assets. That means for every $1 million you have in investments; you can spend approximately $30,000. But returns aren’t constant; they fluctuate. Your withdrawals must be conservative in dealing with volatility and longevity, or you could run out of money. Done correctly, you can spend 5 to 8 percent of your assets each year. You worked so hard to build your business, don’t let your money be lazy when you retire. You expect your employees to be efficient—your dollars should be, too.    
  2. Build a market shock absorber. Sometimes the market goes into a freefall. Before retirement, this creates opportunity. You can buy low and super-charge your recovery. In retirement, the effect is the opposite. When you take a loss, your income withdrawals further compromise your portfolio. As the market recovers, continuing to withdraw money cripples your ability to recover. Creating a liquid side account that has guarantees against market loss creates a buffer; it allows your portfolio time to recover because you have an alternate source of income.
  3. Take advantage of actuarial science. Longevity is one of the most significant resource strains we face in retirement. You must plan for life potential, whereas a reinsured pension based on actuarial science can plan for life expectancy (a much shorter time frame) due to the large, shared risk pool. This allows for higher withdrawals. You can apply the same principles used in pensions to your own portfolio, allowing you to create higher income on a guaranteed basis for the duration of your lifetime simply by looking at certain insured products.

Financial adviser Mary Lyons is the founder of Benchmark Income Group in Dallas.

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