Kenny's SBJ Articles




Opinion: 3 options for managing capital gains taxes

Industry Insight


A lucky couple watched their joint investment account grow to over $1.6 million from $700,000 in just five years – thanks largely to the eye-popping growth of a single stock they purchased long ago. (It was a certain auto parts store you may have heard of.)

For some time, this stock had occupied a large portion of their account, and now even more so. A good rule of thumb is not to hold more than about 5 percent of your portfolio in any one asset; not that our couple should expect any problems with this red-hot stock, it’s really a fantastic company and has been for decades. But you never know, and their financial future is on the line. 

So Mr. and Mrs. Lucky have been told by more than one adviser that they should diversify – sell some of that overweight stock and rebalance into other holdings, to spread their risk across the markets. 

But if they were to sell most of that position, they would face a huge tax bill on the capital gains, i.e. growth in value. It’s a nice problem to have – after all, paying tax on a large gain still leaves you a profit. (This is not an issue for a tax-deferred account, such as an IRA, only for a taxable joint, individual or trust account.)

Sell or hold?
Our couple has a few choices.

Option 1: Sell enough shares of the stock to “correctly” diversify and pay significant tax. 

Option 2: Work with a tax professional to “crawl out” of that holding over time. The 2018 capital gains tax rate is zero for married taxpayers filing jointly with adjusted gross income below $77,400 (or $38,700 for single filers). They could calculate the amount of capital gains they can absorb before taxation applies, harvest enough gains to stay below their pain threshold, then perform the same exercise each of the next few years until they’ve reduced their exposure to the desired amount.

New 2018 tax rules even allow investors to select which lots (bundles of stock or fund shares) to liquidate first. By selling a lot with the highest purchase price, therefore less gains since purchase, you can reduce the tax liability. If some of your holdings dip into loss territory, you can offset those losses against other holdings that have grown, effectively wiping out some taxable gains. 

But keep in mind that short-term gains – on assets you’ve owned one year or less – are taxed at your ordinary income tax rate instead of the lower long-term capital gains rate applied to assets held longer than a year. Harvesting short-term and long-term gains against losses is a great technique but can be tricky. You must perform the offsets in a specific sequence to comply with IRS rules, so work closely with a financial professional.
Option 3: Hold on to the stock and earmark it for heirs to receive “stepped-up basis,” a fresh starting value upon which future taxable gains build. In other words, if beneficiaries sell the stock right after inheriting it, before much more growth occurs, there may be little or no capital gains tax. This can be a sensible strategy for any highly appreciated asset, especially if the plan is to leave something for heirs anyway. 

Risk vs. reward
However, this couple now has about half of their account in a single stock, and they need to consider the risks of continuing to hold such a concentrated position. 

But when a tax or financial professional invariably points out their overexposure, our lucky couple’s response is always the same: “We know. But we never expected this much growth from one stock, and we don’t need anywhere near that much money to meet our goals. So we’re letting it ride!

“Worst case, that stock tanks, but our retirement savings and kids’ inheritance will still be what we planned years ago from our other holdings. Best case, it will be a huge bonus for them. And besides, it’s fun to watch this stock. We’ve kept an eye on that company, and how they treat their employees, and how they give back to the community, and we think it’s a good bet that they’ll continue to be successful.”

It’s hard to argue with that – as long as they understand the potential risks and rewards of their strategy, and their alternatives, and think it through on a regular basis. In that case, this couple is not just lucky, they’re smart. 



What's Your "Recession Reserve"?

Industry Insight



Even with 2008 ever more distant in the rearview mirror, investors still get reminded during most years—and already this year for sure—that stock markets can be a roller coaster.

Now that we’re between major downturns, let’s look at your investment “risk tolerance” in a different way, potentially drive some of the jitters out of investing, and maybe allow you to seek more growth potential.

“Risk tolerance” as typically measured by investment advisors is the degree to which you are willing or able to accept fluctuations in the value of your investments. If your risk tolerance is low, you want conservative, stable investments. High risk tolerance means you’re fine with bigger short-term swings in exchange for more long-term growth potential.

Although the word “risk” itself implies danger of true loss, the U.S. stock market has been positive for 73% of years from 1927-2015, and all 15-year periods have been positive during that time.1 Sharing in potential market growth is as easy as owning a broadly diversified basket of stocks, as long as you see it as a long term proposition.

But there are two ways you can actually lose money in the stock market:

  1. Own stock in a single company which defaults; the stock value may drop to zero. That’s true loss. But it’s easy to avoid disaster—don’t hold more than 5% (preferably much less) of your investments in any single company stock. Winners offset losers in a diversified portfolio, so owning a broad pooled fund investment may do the trick by including dozens or thousands of stocks.
  2. Sell securities for less than you paid…for example, buy a broad U.S. index fund when markets are doing well, then sell during a recession for a lower price per share. Again, true loss.

So why do people “sell low”? Sometimes it’s an emotional reaction to a market drop—“I’m losing money, so I’m getting out now.” Understandable, but again, true loss.  The cure is to recognize that markets always perform in cycles, and a lower account balance is not really a loss unless you sell. Hang on, weather the downturn, and don’t sell low out of an emotional overreaction.

But here’s the other reason people sell their investments low and lose real money: they simply need to raise cash. Retirees often fall into this camp—regularly liquidating part of their portfolio to pay the bills and have their fun. That was the plan, right?

But this version of selling low can also be avoided, with a simple math exercise to create your “recession reserve”:

First, market downturns are unpredictable, so assume the next recession starts tomorrow.

Next, understand that recessions tend to last about six months to a year-and-a-half; afterward, stock values start climbing back up, sometimes slowly, sometimes dramatically, in fits and starts.

Next, understand that recessions tend to last about six months to a year-and-a-half; afterward, stock values start climbing back up, sometimes slowly, sometimes dramatically, in fits and starts. Through twenty-eight market downturns from the Great Depression through the 2008 recession, it took an average of 3.3 years for the purchasing value of stocks to return to full value (adjusting for inflation, and reinvesting stock dividends); the 2008 recession took about 5.3 years to play out, and in only four of those twenty-eight downturns did it take more than six years for stock values to recover.2

So assume a five-year dip for a recession starting tomorrow, until stocks to return to full value.

Now, how much cash will you need from your investments over the next five years? (Or seven years if you want to be extra-cautious?) Stop right now and figure that out. Got it?

Okay, that’s how much you should consider taking out of the stock market now and put into a potentially more stable holding (like intermediate-term bonds) that should not get hammered if the next recession starts tomorrow. This is your “recession reserve.”

When a market downturn comes along, simply draw needed cash from your recession reserve, instead of selling stocks to raise cash.

If your “emotional” risk tolerance is very aggressive, this simple math approach can help you prevent being overweight to stocks and putting your financial plan in potential danger. If you’re a conservative investor, but know you need more long-term growth to meet your goals, this can help shelter a correct amount of assets, but not more than necessary.

So the “recession reserve” strategy may help you worry less about market dips, and allow you to participate more in the growth potential of the capital markets if you wish…instead of allocating your portfolio based merely on your age, or on a negative emotional reaction to inevitable market swings.

This  can really work, but always work closely with your financial advisor to choose efficient investments—and to find the right balance between what the math says you can do, and what your gut says you should do to sleep well at night. And be sure to reevaluate each year to make sure your recession reserve is adequate.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning past performance are not intended to be forward looking and should not be viewed as an indication of future results.

Please note that all investments are subject to market and other risk factors, which could result in loss of principal. Fixed income securities carry interest rate risk. As interest rates rise, bond prices usually fall, and vice versa.

  1. “Reasonable Return Expectations,” DST Systems, Inc., 2016.
  2. “Don’t Fear The Bear,” Mark Hulbert, Wall Street Journal, 2014.



How To Rescue Your Favorite Nonprofit

Industry Insight


There is no shortage of great causes in the Springfield area…if you want to make a positive difference in the world, you can pitch in time, energy, and resources right here. What may be less understood is the razor thin edge within which many nonprofits live.

When I joined a Board Of Directors for an education-focused nonprofit a few years ago, I was excited to step up for an organization I had long admired, which I knew was transforming lives with dedicated volunteers, a critical mission, and an active, engaged Board. I was surprised to learn that despite a rich history of community support and robust fundraising efforts, the books were just not quite balancing from month to month.

As the past Executive Director recounts, “There is so much competition for resources, and this was during an economic downturn when many nonprofits were serving people who needed food or a place to live, so ours took a back seat to those more critical needs...and also larger nonprofits just have bigger budgets for marketing and advertising.”

In one of my first Board meetings I participated in a surreal discussion of the possibility of the organization being shuttered. I thought, “If only we could find just a few more donors.”

Fortunately the stars aligned just in time for us to seize an opportunity to significantly reduce office space costs and some other expenses, and we escaped disaster. But it was truly a narrow escape.

I learned from that harrowing experience that smaller nonprofits—maybe ones you support yourself right now—operate on budgets slim enough to be toppled too easily.

Here are ways you can be a hero for them, and potentially help yourself or your business from a tax planning standpoint.

Outright gifts of money or other much-needed tangible resources: take immediate income and gift tax deductions; webpage “EO Select Check” will help you verify your target organization is qualified. Keep a good paper trail for your accountant.

Bequests by will or trust: the nonprofit receives the gift, and again, your estate benefits from the deduction. Seek professional legal advice…there are many potential pitfalls but plenty of qualified attorneys to assist.

Charitable trust: this is another special instrument that will require an attorney to set up, but can be arranged in a number of flexible ways. For example income producing assets like dividend-paying stocks held in a “charitable lead trust” can generate income for a nonprofit for a period of time; then the principal returns to a family member or other heir. Conversely, a “charitable remainder trust” pays income to you or others first, then the remaining balance passes to the charity at death. Trusts such as these are great estate planning tools…potentially providing tax advantages along with support for beloved charities and heirs.  

A “donor-advised fund” is an account held at a nonprofit, designed to manage ongoing contributions from individuals or organizations (such as your business). It can hold money, securities, or other IRS-approved items of value, and appreciated assets may receive stepped-up basis to potentially reduce capital gains tax. You give up ownership and take the deduction, and you may even advise the charity (in a non-binding way) on how assets should be used. Not all charities are set up to house donor-advised funds, and there may be administrative costs for you, but under the right circumstances this may be a great alternative.

A “family foundation” is a specialized entity that provides grants to nonprofits, which in turn carry out charitable activities you wish to support. Family members manage the foundation, which may continue indefinitely through successive generations. For families with enough assets to generate momentum and cover administrative expenses, this approach may create a significant and lasting legacy.

Finally, a new or existing life insurance policy may be gifted to a nonprofit, which becomes both owner and beneficiary, and you may claim a tax deduction on the cash value; or you could simply make the nonprofit a beneficiary for part or all of the life insurance proceeds at your death. If you’re donating to a nonprofit anyway, consider using that money instead to fund new or existing life insurance premiums—perhaps for a policy you purchased years ago but no longer need. There may be no better way to leave the world a little brighter than you found it, and a lump sum injection such as this may be the biggest best surprise a struggling small nonprofit could imagine.  

Give. Volunteer. Get your employees involved. And pass the word…you or someone you know right now may want to take one or more of these actions to rescue a charity in need. Do you know for sure your favorite isn’t one of them?


Special Investing Considerations For Business Owners

Industry Insight


If you’re like many entrepreneurs, your company may be your biggest investment asset. You’ve put in blood, sweat, and tears, and probably a good deal of capital along the way. Maybe you’re plowing most or all of your profits right back into the business…and when it comes saving for retirement, maybe right now your company is your retirement plan. You’re not alone, we’ve heard this many times.

But if you understand the stock market investing concept of diversification—that it’s unnecessarily risky to put too much money into any single publically traded stock—you should also know the same risk applies to having all of your retirement planning eggs in one basket. Even if that basket is your own company.

Sure, you know your company books better than any investor ever knew Enron’s or WorldCom’s books (and you know your books are clean!)…but that doesn’t make your business a risk-free investment.

So seek some diversification of your retirement savings away from your own business, perhaps by investing in tax-advantaged stock and bond markets in line with your investment risk tolerance. Include the value of your own company as a single “stock” when calculating your aggressive-to-conservative (stock-to-fixed) investment allocation.

For example if the value of your business is $750,000, you would need an additional $750,000 in conservative investments (bond funds, CD’s, cash, etc.) to achieve a “moderate” investment risk posture on a $1.5 million portfolio.

If your risk tolerance is aggressive because you are still several years from retirement, and your total portfolio is $3 million including your company, you might shoot for an 80% aggressive growth risk posture by owning $600,000 of bond funds and $1,650,000 of well-diversified stock funds in addition to your $750,000 business.

Now this still far exceeds the rule of thumb against having more than about 5% of your total portfolio in any single stock, but it’s a step in the right direction.

If you’re in a position to install a tax-advantaged retirement savings plan for your employees, choose a structure with your own retirement planning in mind too. Even if you’re the only employee, there’s nothing stopping you from launching a Simple IRA or even a 401(k), which may allow dramatically more tax-deductible contributions each year than a traditional IRA.

Weigh pros and cons with your advisor, and as with all investments, watch your fees—for the advisor, the investment company, and for the investments themselves. Fees directly affect your investment outcome, and therefore ultimately your retirement income.

If you want to save more than IRS rules allow for your tax deferred vehicles, open a separate non-tax-advantaged (“non-qualified”) account, but look for Federal and/or State tax-free investment choices such as municipal bond funds to help manage the tax burden. Your working spouse can open a separate IRA as well, up to IRS limits.

If a good portion of your retirement hinges on the future sale of your business despite your best efforts to diversify, get ahead of that process five to ten years ahead of your retirement date. Seek professional valuation of your business, and look for ways to increase its worth in terms of expenses, debt load, consistency of cash flow and other factors that affect profitability—which can improve your position now as well as when it’s time to sell. And don’t neglect to protect your investment with business overhead insurance, key-person life insurance, a properly funded buy-sell agreement if appropriate, and other products and techniques to shield your personal business investment from hazards.

If your plan is to eventually sell the business to family or employees, there are better and worse ways to go about that, so work with an experienced professional. For example if you pass the business to family members or employees at your death, they may receive “stepped-up basis” under current tax rules. This can potentially save you a significant capital gains tax bill compared to selling the business outright during your lifetime (and this is an important planning consideration for any appreciated asset, not just your business).

And remember, the important thing is not the amount of the lump sum you have on hand at retirement, it’s the amount of income you can generate from that money to supplement Social Security and fund the comfortable and enjoyable retirement you earned. Plan carefully and adjust your long-term projections regularly, account for inflation all the way through a potentially long retirement, and seek professional advice for income-generating investment options as the big day approaches.



"Should I Buy Bitcoin And Pot Stocks?"

Industry Insight


We frequently hear variations on that question: “should I invest in 3D printers?” or “I heard on TV that Company X stock is set to take off…should I buy?”

The current shiny object is the eye-popping growth in the value of Bitcoin and other “cryptocurrencies”—digital money enjoying increasing popularity as an alternative to traditional banking. And as more States legalize marijuana, there is a lot of buzz about “pot stocks”—tiny new companies trying to take advantage of a growing market. All puns intended.

Whatever the trendy new investing opportunity, our response is the same:

First, a new industry or freshly-launched company stock is a speculative investment with a relatively strong risk of loss. Speculative investments may have little or no track record, or may not be well diversified, or may have additional types of risk that make them unsuitable for many investors.

To be clear, the broader well-established investment markets—stocks and bonds on the major exchanges, mutual funds, exchange traded funds—may be much less speculative, but there are still risks, including the risk of fluctuations in value, or even loss.

But with speculative investments like cryptocurrencies or pot stocks, or the contraption your uncle invented in the garage, the risk is greater for major price fluctuation or loss. Liquidity is another potential problem for a thinly-traded investment as you may wait a long time for a buyer when you’re ready to get out.

Having said all that, you could make a killing if you pick the right pot stock, or the right cryptocurrency, at the right time. The problem is that stock-picking and market timing generally don’t work, as shown by decades of academic research. Think back to the Betamax v. VHS videocassette era if you’re old enough to remember…which would you have chosen as an investment before knowing the outcome? Your chance of winning would have been a coin flip. Which of hundreds internet companies would you have added to your portfolio in the late ‘90’s as the tech bubble inflated? Which ones are still standing? Your odds there were perhaps much worse than a coin flip.

The problem with trying to outsmart the investment market is that publically traded securities in the U.S. are strictly regulated, with issuing companies required to provide very specific information at specific intervals, such as quarterly reports…and additional “insider” information-sharing is strictly prohibited. Management shakeups in the news, or new products, add widely available publically information to official company reports. So generally all investors have access to the same information at the same time, by law.

Thousands of professional investment managers around the world then analyze that data to determine what they believe to be a fair price. Thousands of resulting trades set the price of a given stock from moment to moment, as new information comes out over time. This including information and opinions shouted by people in rolled-up sleeves on cable shows.

So to beat the market, you have to be smarter or luckier than the average of tens of thousands of investors around the world, all working from the same information. Do you think you are smarter or luckier than those thousands of traders, most of whom are professionals who analyze and trade stocks and currency markets all day for a living? If not, proceed carefully.

If instead you simply buy a broad basket of stocks and bonds using mutual funds or ETF’s, for example a total-market fund holding a large swath of securities, you will essentially be accepting the collective expertise already at work within the markets. You will likely also eventually own a portion of newer industries and companies which have profited their way onto the major securities exchanges, including pot stocks and cryptocurrencies…in proportion to the place they have earned in the investing marketplace.

Other examples of speculative investments include art, collectibles, thinly traded small- or micro-company stocks in any industry, and gold and other precious metals. (Many people mistakenly believe gold is a conservative, stable investment—but prices for gold and other precious metals are often extremely volatile. Again, if you own a broad basket of securities, you probably already hold a portion of precious metals, and/or companies which use those metals, in manufacturing for example.)

The unexpected micro-crash of Bitcoin values in December, and the U.S. Attorney General signaling a possible return to more aggressive enforcement of marijuana laws, should give pause to even the bravest speculator thinking about cryptocurrencies or pot stocks…let alone us “regular” investors.

Treat speculative investments as you would treat any individual company stock: a good rule of thumb is not to put more than about 5% of your portfolio into any single potentially volatile asset, including a speculative flavor-of-the-week.



The #1 Financial Planning Strategy For Couples

Industry Insight


The most important financial planning item for couples has nothing to do with stock markets, getting out of debt, or even selecting a good’s making sure you both have a basic understanding of your financial picture. So get together, get organized, and start talking it through now.

If a financial adviser has a closer relationship with one member of a couple than the other, could this become a problem in the event of a death? If one spouse handles most or all of the household finances, and the other has no clue, what will happen if the “bookkeeper” dies or becomes disabled?

Talk about this together now, and have a transition plan in case of tragedy—when life will be plenty upside-down without the added problem of financial disarray.

A couple we’ll call Mr. and Mrs. N sought help from their adviser with the proceeds from the sale of real estate which Mr. N had inherited from his father. His dad had purchased the land many years prior, so capital gains tax was going to be considerable. They talked with the adviser about strategies to stretch the tax hit over a couple of years, and how to conservatively invest the money so that it would be available to pay the tax bill the following year.

Near the end of the meeting the adviser asked Mr. N if he had any questions—and then turned to Mrs. N and asked the same thing. She responded, “I just hope I die first.”

Mrs. N didn’t feel she understood everything well enough…Mr. N handled most of the finances, and she just felt lost.

From that point on, the adviser took extra time each meeting so Mrs. N could catch up and keep up…so she didn’t have to feel exposed.

If your adviser isn’t already taking similar steps, take it upon yourself to get everyone on the same page. 

This is about both you and your partner knowing your resources and team members: accountant, attorneys, investment adviser, financial adviser, insurance agents. Meet together with each member of the team if you haven’t already. Make sure you and your partner have a basic working knowledge of what you own, and how it’s protected. Understand the plan for managing assets to meet basic needs…and how those needs might change in the event of death or incapacity.

And get organized. Albert Einstein said, “If a cluttered desk is a sign of a cluttered mind…then what about an empty desk?” (Another Einstein quote: “I never said half the things I’m quoted as saying.”)

If you’re the Einstein who takes care of the finances for your household, and your desk is very cluttered (you know who you are)—what if something happens to you? Will the first question your survivors ask be, “Where is everything?”

Create a “survivors guide” using a three-ring pocket binder. The centerpiece is essentially a table of contents for your financial life—personal data, contact information for insurance agents, investment advisers, attorney, accountant, where your assets are located, where the car and home titles are kept, safe deposit box location, bank information (not account numbers and Social Security numbers because you don’t want those laying around the house—but the secure location where these can be found).  

You may also want to include copies of wills and trusts, insurance policies, health care directive, powers of attorney, and real estate deeds. Some even choose to include a self-written obituary and eulogy…yes you can truly get the last word!

Now it doesn’t take an Einstein to come up with list of items you need to organize, and a place to put all of it…but in addition to helping those you leave behind, it can also benefit you if you’re not already as organized as you’d like to be.

This is not something you complete overnight, it’s a project you work on over time. But once it’s in place, you can sleep better knowing your survivors can find everything. And maybe it will be the surviving spouse who benefit first…if that were to be you, do you already know where everything is? If you helped pull all this information together for your “survivors guide”, you’d know. And when you do find yourself suddenly on your own, it becomes yours, and you can update it for your own survivors’ benefit someday.

When you show your siblings or adult kids where you keep your survivors guide, and what’s in it—they may realize you did this for their benefit, and they may think about organizing their own financial lives too.

We do this to help the ones we leave behind pick up the pieces, to make those pieces easier to find, easier to pick up, at a time when the last thing survivors want is to have to dig through Einstein’s desk.



Your Retirement Planning Checklist

Industry Insight


Some of us spend more time planning a vacation than planning a comfortable retirement. It’s never too early to seek balance between current needs, wants, and dreams, and the planning and savings necessary to fulfill future retirement needs, wants, and dreams. Here are retirement planning essentials to get ahead of right now.

  1. Project what your retirement will look like in terms of both basic and lifestyle expenses (travel, hobbies, “toys”), then estimate how much to save toward those goals. Re-calculate regularly to ensure you’re on track, and to account for changing retirement expectations. If you’re many years from retirement this may be tricky…do your best, use online retirement calculators and/or seek professional assistance, and keep in mind it’s better to over-save a bit than to under-save.

Account for 2-3% inflation, and test “bad-case” scenarios, for example early death of a spouse which will leave only one Social Security check each month; or a large emergency expenditure which might knock your plans sideways.

  1. Business owners: seek professional guidance for exit planning tactics to help increase the value of your business now, and put formal plans in place well ahead of time to facilitate a lucrative and smooth transition to family, employees, or third parties. 


  1. Take advantage of tax deferral and company contributions if you are able to participate in a workplace retirement plan—and accept planning assistance from the investment company if it’s offered. If you’re a business owner and don’t have a workplace retirement savings program, look into it for the sake of your own planning needs (and incidentally as an excellent employee retention tool).


  1. Seek at least a basic understanding of investment products: the long-term rate of growth of your savings can dramatically affect your progress, and ultimately the quality of your retirement. Stock funds tend to offer good growth potential, at the price of short-term volatility (ups and downs). If you’re more than about five years from needing to take withdrawals, you can invest aggressively. But avoid excessive trading, and don’t try to time markets because that does not work.

As you approach retirement, calculate the amount of cash you’ll need from your investments within the next five years, and protect at least that much from market downturns, by moving it into bond funds for example. This will help avoid having to “sell low” as recessions typically only depress stock values for 3-5 years. This approach may help you worry less and give you a better shot at meeting your retirement accumulation goals. Repeat this calculation each year all the way through retirement. If you still lose sleep worrying about the stock market rollercoaster, follow your heart and perhaps invest more conservatively…understanding there may be a lifestyle trade-off down the road if your investment growth is insufficient.

  1. As retirement approaches, and throughout retirement, create a detailed household budget—and follow it!


  1. Understand Social Security claiming strategies to help maximize retirement income, and consider how Social Security claiming choices might affect a surviving spouse in case of a death (seek professional guidance if needed).


  1. Don’t jump the gun on raiding tax-advantaged investment accounts. Tax deferral is a wonderful, rare gift from the IRS, so don’t ruin it by incurring penalties before age 59 ½, or by spending tax-deferred money—401(k)’s, IRA’s etc.—when other funds are available. However: be sure to take your IRS Required Minimum Distributions from tax-deferred accounts starting at age 70 ½, otherwise you may be subject to large penalties. Work with your tax professional to make sure you follow current rules.


  1. Adjust your “risk management products” as needed: life insurance, health insurance, long-term care insurance, Medicare supplements starting age 65, etc.. Seek professional guidance if needed, as these are critically important to your financial health.  


  1. Periodically update estate planning documents such as wills and trusts throughout your life, with professional legal guidance. No asset should go through probate before passing to heirs—so make sure everything you own of significant value, including real estate, has a beneficiary document attached. Get beneficiary forms directly from the companies that issue your investment or bank account statements; and from the DMV for cars/boats, or anything else with a title. For real estate, work with a title company or attorney. 


  1. Review retirement projections periodically before and during retirement to see if reality matches your projections, and adjust as needed.

Bonus tip: both now and in retirement, take advantage when the U.S. dollar is relatively stronger than other currencies, for lower-cost world travel. This relates directly to your final checklist item: enjoy your retirement…you earned it!



Business Exit Planning?! We Just Now "Entered"!

Industry Insight


The day you open for business is not a minute too soon to think about your long-term exit strategy—a written plan including provisions for increasing the value of your business at least five to ten years ahead of your exit date. Incidentally this can provide a template for running a better business at any time, so it’s to your benefit to deploy these preparations right now.

Start with creating a culture of success with your employees, especially your key people…help them develop an “ownership mentality” so they see their critical role in the company’s long-term success, and their role in helping that continue with or without you.

Exit planning overlaps with “contingency” (disaster) planning for your business: whether you retire at age 65 on your terms, or meet with an untimely demise tomorrow, you’re leaving the business. And that requires planning.  

If your spouse would inherit the business at your death, but would have no interest in actually running it, what would happen? If a buyer would have to be found, who would manage operations in the meantime? Establish buy-sell provisions now:  

  • Identify who will take over: partner(s), family, employee(s), or third-party purchaser? If it’s family or employee(s), initiate in-depth discussions about how this would actually work, all the way through a successful transition for the business, employees, and customers. This is necessary for both exit planning and “death-of-owner” contingency planning.


  • For death-of-owner planning, prepare a written buy-sell agreement with an experienced attorney. This includes a purchase price formula (which should be revisited regularly as conditions change), the responsibilities of each party, and other provisions.

Determine how the buy-sell agreement will be funded. Life insurance is a common method: the business owner is the insured, the successor-owner is beneficiary. This provides immediate cash for the successor-owner to purchase the business from a surviving spouse. There are many variations on this theme, so work with an experienced planner.

Again, if you intend for an employee or family member to take the reins at your retirement or death, what training and/or experience do they need to get ready? Get started now.  

Consider “stay-put” agreements to commit key managers and employees to assist with transition to new ownership, perhaps with a “stay bonus” in addition to regular pay as an incentive to stick around.

All of the “death-of-owner” planning items also apply to “sale-of-business” exit planning, but for a sale you’ll need a purchase agreement and other documents, and the funding will come from a commercial lender, seller note, and/or installment payment agreement instead of life insurance.

Other contingency planning items:

Disability/illness/injury of owner: In addition to disability (income replacement) insurance for yourself, consider business overhead expense insurance—so the bills get paid and the doors stay open while you’re out of commission.

Death or disability of key employee: What would be the expense of replacing your top manager or salesperson temporarily or permanently? How much revenue would potentially be lost during the transition? Consider key-person life insurance and/or key-person disability insurance.

Resignation of a key employee: An Executive Bonus Plan can “golden handcuff” them. A common method is to contribute to a cash-value life insurance policy on behalf of the employee. The life insurance component provides family protection for the employee, and the cash value can supplement their retirement savings someday. This shows the employee how much they mean to you in a concrete way; vesting provisions in an accompanying written agreement put teeth in the program—if they leave before the vesting period is complete, they sacrifice some or all of the benefits.

Commercial property and casualty insurance: this may include “business continuation” provisions to cover expenses and payroll during down-time following a catastrophe.  

Estate Planning: For both your family and business: review your estate plan with your attorney and accountant and revisit regularly, to ensure that you’ve properly addressed your estate tax and gift tax exposure; probate avoidance provisions; your will, trust, powers of attorney, and other estate planning documents. Discuss with your planning professionals the potential capital gains tax benefits of stepped-up basis for heirs, versus transfer of company ownership during your lifetime via gifts, installment sale, or other means.

You may need a number of risk-management specialists to help address potential hazards to your livelihood and sweat-equity, and to plan now for a smooth, successful business sale. Work with experienced professionals to weigh costs and benefits; you may want to engage with a business advisor separately from your personal financial advisor if they’re not experienced in these matters.

Happy planning, and here’s to your graceful and lucrative exit…someday!