Avoid a rude awakening in retirement

On December 31st I was in Cancun, Mexico where the high temperature that day was 82 degrees. I flew home on New Year’s Day to Des Moines, Iowa where the low was -18 degrees. Yep, a 100-degree swing in under 24 hours. Talk about a rude introduction to 2018.

Similarly, many business owners have an equally rude journey into retirement. One day they are working sixty plus hours a week making decisions and guiding the company they founded. The next – the day after retirement – they find they have little to do. Many times, the biggest thing they run is the TV remote (and even that is not a given).

Options for easing into retirement

Is there a better way? Does it have to be the equivalent of a 100-degree swing overnight? Can they continue to work and still create some liquidity from their business?

The answer for many business owners is a resounding yes. They have used an Employee Stock Ownership Plan (ESOP) to create a liquidity event for the owner while allowing them to continue in their role.

ESOP Advantages

An ESOP can have many advantages including:

  • The business owner can sell all or part of their company generating liquidity for other uses.
  • The employees become owners of the company over time through the ESOP, a qualified retirement plan.
  • The company continues to benefit from the experience and expertise of the selling owner.
  • The selling owner can often determine how much or how little to work. Many will use this as an opportunity for a phased approach to retirement.
  • The bank that financed the transaction may be more comfortable that the guiding force from the past continues to guide the company for some period.

Coming back to -18 degrees was my choice (grudgingly). The business owner’s decision of when to sell their company and how to stay involved can be much more pleasant.

In addition to blogging here, I also tweet regularly about topics of interest to ESOPs.  Follow @twitter 

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This document is intended to be educational in nature and is not intended to be taken as a recommendation.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.