You need to ask these three questions about your financial future

For the emerging affluent, this isn't their parents' retirement

Colorado’s “start-up economy” is fueled by the state’s “emerging affluent” – young, entrepreneurial professionals aged 35 to 50 who are earning high incomes but have not created large balance sheets – yet.

For the emerging affluent, retirement can look much different than their parents’ retirement. They’re almost certainly not going to depend on a company pension or Social Security, they will likely live much longer and will likely face higher health care costs than their parents. Unlike boomers, the burden for retirement rests on their shoulders.

Some people believe they can invest their way to and through retirement. But a diversified portfolio of stocks and bonds is only part of the picture. Longevity risk, market, tax1 and inflation pressures, along with health care needs and legacy goals, create the need for a more holistic solution than a well-managed portfolio alone. 

Yes, we need to build wealth. But strategic thought around what assets are created and where they are located on a balance sheet, can have tremendous impact on a retiree’s ultimate success and peace of mind during retirement.  Protecting and preserving those assets carries as much weight on a successful outcome as focusing purely on the highest returning investment portfolio.  You need both approaches to help ensure success and live life differently than others.

I ask my emerging affluent business owners three key questions:

Do you have an exit strategy and a backup plan?

In a perfect scenario, a well-constructed business will maximize its value on the day of sale.  The proceeds from that sale, if well managed, should then create the retirement scenario desired.  So many moving parts must be perfectly timed for that outcome.  So, what is the backup plan? Though it’s possible that the proceeds from a business sale can solve retirement, a backstop or comprehensive approach will help improve the probability of the desired outcome. An owner often desires or is pressured to reinvest profits back into the business.  Have you considered taking some “chips off the table” and investing in alternative scenarios to support your retirement picture?  Have you strategically considered how to turn income into assets both inside and outside your business? 

 Do you have a retirement strategy, and is it efficient?

Many investors are unsure about how much annual savings are required to achieve retirement, what specific assets should be created, and what return is needed to accomplish their retirement goal.  Further, how efficient is your strategy during the distribution phase of retirement?  In other words, generating the highest potential asset value (pre-retirement) is at odds with creating the highest possible income (during retirement) Creating a strategy to arrive at retirement with enough assets is half the picture.  A complete picture will include having an efficient way to sell those assets in any market condition, for any longevity, in any tax scenario, with any potential health concerns or legacy goals. 

Do you have anxiety around your plan?

So much of the emerging affluent’s financial livelihoods is tied up in their day-to-day business. Have you considered what would happen if you were unable to work? What if you passed away before the business is sold, or transitioned? What if either scenario happened to a family member? Or a business partner? Managing life’s risks while efficiently building wealth is one clear approach to live life differently and help create peace of mind within your plan.

Now more than ever, emerging affluent professionals need a comprehensive approach and written plan to help achieve financial security. I urge people to hire a trusted advisory team, with a fiduciary responsibility, a broad understanding of planning, and an objective viewpoint to serve as a sounding board in the creation of a strategic financial (retirement) plan. When you replace anxiety and doubts with confidence and clarity, you can focus on what will truly help build your wealth – your business. 

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