Gearing Up for the Golden Years
Finding the right partner for retirement planning makes all the difference in meeting your goals
By Randy Johnson, PT, DPT
As a longtime small business owner and a serial entrepreneur, I knew that crossing the threshold of business operator and stakeholder to “retirement” would be a pivotal crossroads in my life.
As entrepreneurs we work incredibly hard to take ownership of our own success and the opportunities that come with it. Building a business, you become accustomed to dedicating time, energy, resources, and making personal sacrifices for the betterment of the business and personal future prospects. If successful, that future always becomes reality. Through hard work and many blessings the reality of my business was a major liquidity event in which I would sell my practice and move into the retirement season.
At the outset of our “next season,” for our family we recognized the importance of putting a plan in place for the windfall we had just experienced and to build a framework to ensure financial health over the next few decades of life. For someone who had always “bet on myself” and become accustomed to both building wealth and providing income through the business, we were walking into a world of unknowns. Given the wealth we were blessed to accumulate combined with a dynamic balance sheet aligned with my proclivity as an entrepreneur, it was clear that there would be great value in finding a partner to navigate our financial life.
As we began our due diligence process to find the right solution for navigating our financial partnership needs, it was important to recognize the different routes we could take in managing our assets. There are varying approaches and sub-approaches in the personal asset management realm, but those can be generalized into three buckets:
- Go It Alone. There has never been more access to technology and information that equip each of us to manage our own investments. However, it takes a very honest self-assessment to identify if you truly can do so. Taking ownership of your own investment management makes you the key fiduciary of your financial life. This route requires a lot of time, energy, and discipline to invest successfully over decades. Most importantly, a go-it-alone approach requires individuals to overcome the psychological challenges that are the downfall of many investors.
- Portfolio Management. Portfolio management involves an individual committing their investment management to a professional. Hiring a professional to manage investments alleviates the responsibility that comes with having to take ownership of your own portfolio construction from asset allocation down to manager and security selection. This approach aligns closely with what most people would recognize as the traditional “financial advisor” model. The investment professional is responsible for working with clients to formulate a clear understanding of their unique circumstances, risks, and preferences. Typically, the scope of the relationship is focused strictly on investment management. In general, any investor can access a portfolio management solution that aligns with their needs. Depending on the scope of management, service providers may have an asset minimum beginning at a given threshold of investable assets, for example $250K or $1million.
- Comprehensive Wealth Management. A true wealth management approach goes well beyond investing. It involves addressing a wide range of financial issues that life brings and planning for them in a comprehensive way. Wealth management brings synergy to your entire financial life with a professional partner that will act as your “financial quarterback.” In general terms, wealth management is like a pyramid with financial planning and investment management at the top of the pyramid and sub-components completing the base. Custom financial planning will drive investment decision making in a wealth management approach, to best align investments with every individual’s unique and evolving needs. A wealth management professional will also engage and provide guidance in satellite financial areas of a client’s life: estate planning, tax strategies, insurance planning, charitable giving, etc. While not all services would be performed in-house, a wealth manager acts as a conduit to help coordinate all major financial needs and providers. Investable assets could be a barrier to entry for comprehensive wealth management services as most firms have a stated minimum of $1million dollars in assets under management if not higher.
As my wife Debbie and I evaluated our unique financial needs and balance sheet, it was clear that a higher level of engagement would serve us well. As a bit of background, we had sold our practice for a sizable amount of money, so we met asset minimums across the range of investment approaches. A nice nest egg combined with numerous commercial real estate assets and personal use properties made our situation more complex. We also had personal priorities to steward our resources well with clear intentions on maximizing the value our money could provide for the greater good. A top priority was having a well thought out charitable giving plan and expertise on legacy planning.
At the end of the day, we needed a concise plan to balance major priorities for the retirement season of life:
- Ensure we had a plan to provide for our personal financial needs for decades to come, avoiding the risk of burning through our nest egg.
- Seek guidance to strategically align investment-decision making with our personal needs and the illiquid side of our balance sheet (commercial and personal use properties).
- Prioritize charitable giving as an essential part of our financial life.
- Grow our assets strategically, balancing our personal needs with legacy goals.
It was clear to us after putting pen to paper that a more comprehensive wealth manager would be the best partner for us. Given the intimate level of personal information and trust that goes along with empowering someone to take ownership of our financial life, finding the right fit can be an unnerving process. We initially committed to a professional who turned out to be a poor fit to meet our needs and made a pivot to our current advisor, with whom we have enjoyed a successful partnership with for six years. My guidance in finding a great fit is that trust and communication will be the foundation of a successful financial partnership. There are many professionals who can provide quality service on the investment side, so finding a good fit for your family on a relational level should be prioritized.
At the time of engagement, we worked with our advisor to construct a long-term financial plan as a living document to guide decisions and work toward goals for many years to come. This document has evolved numerous times in the period we have been working together, always focusing on achieving our highest priority needs and dreams. Having a well thought out plan in place acts as a great framework and decision-making benchmark. As we have learned in a short time, staying disciplined to both investment strategies and a goals-based framework gives us our best shot at long-term financial success.
A few examples of the value that a wealth management partnership has provided us include:
- Creating a strategy that considered the unique characteristics of our commercial real estate holdings and provided the context that this component of our balance sheet could act as an alternative for fixed income. Eliminating the need for a traditional bond allocation and allowing a more risk-on investment approach within our portfolio.
- Creating a Donor-Advised Fund to dedicate proceeds from our business sale to legacy charity goals – while doing so in a tax-sensitive way, bringing value to both our family and charities we support.
- Balancing liquidity needs across our balance sheet in a constructive way with lots of movement between liquid and illiquid assets.
- Providing a partner to walk alongside us for legacy family planning conversations and building investment strategies to save for grandkids’ education.
THE RIGHT SOLUTION FOR YOU
The right approach for financial management is a personal exploration of finding a solution that best meets your needs. The tools and resources available for personal management have never been more accessible than they are today at any level of assets, while working with an experienced professional may provide great benefits well worth the cost of partnership. A sound financial management approach is one of the most important decisions a person will make in their retirement season. The decision involves much more than the selection of funds, stocks, and bonds. I would encourage anyone going through the due diligence process to consider how their approach will empower them to accomplish their most meaningful goals. These goals are personal in nature and may include things like assuring you do not outlive your money, retirement travel, providing family support, planning for legacy goals, and so much more. The greatest challenges in successful financial management are overcoming the psychological hurdles that have tested investors for centuries. Formulating a sound long-term plan and executing on that plan will be the most important discipline a successful long-term investor will have, whether going it alone or partnering with a professional to help ensure success.
Randy Johnson, PT, DPT, is a PPS member. He can be reached at email@example.com.