I Retired with Millions,

Earlier this year, I met with a potential client who needed help managing his finances. I will call him Mike in this newsletter. What was particularly interesting were Mike’s thoughts and the mistakes he was willing to share with me when we were discussing how we would work together. It became rather apparent that, for Mike, money itself was not an issue. He had sold his business a few years ago and had plenty of assets to retire successfully.

What stood out were the details of our many conversations. I remember one of the first things he said was, “I retired with millions, but I feel like I made so many mistakes.” In this newsletter, I’ve consolidated our multiple conversations into six common mistakes that many business owners and retirees make. I hope this will be useful to you if you are planning for your retirement or business exit strategy.

1.) Feeling loss of control

Transitioning from actively participating in his business and earning income to passively watching his investments was not easy for Mike.

He used to have a lot of control over his company, specifically how much income he received from it and when.

With an investment portfolio, you cannot really control what happens in the short run.

In our meetings, I tried to focus on the idea that by selecting the right mix of investments, you can impact your long-term returns.

You also have much more control over how much you pay in taxes, especially if you are proactive with your decisions.

2.) Dramatic change in lifestyle

For Mike, his business was his life, and his life was his business.

As many business owners know, growing your firm is no different from raising a child. You get attached to it, and it’s hard to eventually let go when you decide to sell.

Mike talked with many of his friends who explained how different things would be when he retired.

In retrospect, he admitted that he was not entirely prepared for the loss of status and meaningful connections when he sold his business. 

3.) Significant change in expenses

A large number of Mike’s expenses were covered by his business. These were normal tax deductions for business operations. 

Even though it was not necessary for Mike to have a budget, he explained that he wished he had spent more time understanding what it would look like when he retired.

He was shocked to find out how much he was actually spending when all of the expenses were coming out of his personal accounts. 

After all, there would be no income besides his Social Security and what came out of his portfolio for the rest of his life.

4.) Unexpected investment opportunities

Since Mike was very well connected within the business community, it didn’t take long for different advisors and other “helpers” to find out that he had sold his business.

Several of his friends also suggested that he talk with their “guy” about different options.

Mike and I had a number of meetings discussing these potential investment options, which ranged from private equity, real estate, foreign investments, and even more exotic options.

In reality, there was no investment plan or strategy in place. Besides his retirement accounts, Mike was sitting on a lot of cash in multiple bank accounts.

What eventually came out in one of the meetings was that Mike was actually afraid of investing.

The fact that his entire retirement would depend on his own limited understanding of investing crippled his decision-making. 

Mike needed a plan, or more specifically, he needed a structure to make important financial decisions.

5.) Lack of tax and asset protection planning

To my surprise, besides the planning for the business sale that took a few years, there was not much done beyond that. 

We talked about a variety of strategies that help reduce taxes and protect your assets. 

Given Mike’s charitable goals, one of them was to create a Donor Advised Fund (DAF) and transfer a certain amount in the year of the business sale. 

This strategy would have saved him significant taxes in the year of the sale.

I am reluctant to share any specifics regarding the lack of asset protection planning in this newsletter.

I will just say that keeping significant funds - millions of dollars - in cash in your own name is not likely to be ideal in case of a lawsuit.

6.) Lack of wealth transfer plan

Mike had his basic estate planning documents in place. In fact, he updated them right after he sold his business, which is certainly a good thing.

He is single and has two adult children who are successful in their careers but lack experience when it comes to managing finances. 

In one of our meetings, I asked Mike if he would actually be comfortable if his children inherited all of his assets outright if anything happened to him today.

Would they be comfortable managing a multi-million-dollar inheritance on their own?

 What happens if they experience a lawsuit, divorce, or if someone simply takes advantage of their lack of financial acumen?

There was no protection in place for these circumstances in his current estate plan.

I would like to remind people that a successful wealth transfer plan is not limited to creating legal documents.

There are many things you can do on an annual basis to take advantage of the existing rules, such as annual gifting and creating tax-efficient 529 college savings plans for your grandchildren.

Ideally, you would want to involve your children in these conversations. You want them to be good stewards of your legacy when they eventually inherit your assets.

Why is this important to you?

In my opinion, Mike’s situation is a good example of how working with a good financial planner benefits you beyond just managing your finances.

We create a framework that makes our clients feel confident that they are making the right life and financial decisions for themselves and their families.