More often than not, when I ask business owners what their lifestyle number is I hear either “I don’t know” or “I THINK I need (X)”.
These are smart people. They built a business with revenues exceeding $5 million. Yet despite their hard work and attention to detail, they haven’t asked the right questions or been guided through the right discovery process to find their true lifestyle number.
Three primary factors will drive your answer:
For a more in-depth look at these, watch the companion video.
Working with one of our strategic partners, Legacy Planning, our Six Pillars clients leverage a practical tool called the Lifestyle Pyramid that accounts for assets, expenses, and desired lifestyle expectations to find “the number needed” for their next chapter.
Let’s break down the Lifestyle Pyramid’s three tiers:
One critical point: investment income is not guaranteed. As interest or dividend rates change so will the rate of return generated from your investments.
To provide for discretionary spending, gifts, and charitable giving consistently, your plan should ensure you have enough cash on hand. Specifically, we recommend two to three years’ worth of cash to fund these categories to stabilize any flux in the market.
Once the Lifestyle Pyramid is complete, you have the annual lifestyle number you need to meet your retirement goals. Through modeling, we can show you a projection of how long your current assets will last based on this annual spending, investment returns, and inflation.
Today, if you are 65 and relatively healthy, you should plan on living another 30 years. The Lifestyle Pyramid and modeling tell you whether or not your current assets will fund your ideal lifestyle and for how long. If your lifestyle outspends your assets, you have found your value gap.
Business Value – Lifestyle Number = Value Gap
The value gap is the number you need from the sale of the business minus what you need to live, not only today but, down the road when you are no longer collecting a regular paycheck, draw, or distribution from the business. Stop and let that sink in.
You need to know this number BEFORE you transition in order to live your Next Chapter on your terms.
Do you see how important it is that an owner starts working on their Lifestyle Pyramid NOW? Bridging a value gap is much easier while you are still working in the business with time to build value, unlock wealth, and reach desired financial goals for your next chapter.
For help finding your lifestyle number or planning your next chapter, talk with us.
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