Could Living Too Long Be a Problem?
In his book, "How to Run Your Business so You Can Leave It in Style", John Brown outlines a seven step process that a business owner needs to go through to get the most value out of their business and retire to the life that he or she wants.
The frst two steps in the process are: "Establish the Owners Objectives" and "Establish your Business's Value". They can be best illustrated by the following questions-"Do you know your exact retirement goals and what it will take-in cash-to reach them?" and "Do you know how much your business is worth today, in cash?"
It is the frst question which is most perplexing for most business owners. Very often a signicant portion of the funds to support their lifestyles has not been showing up on their T4 slips. And for many, their optimism for retirement is clouded by the 3 "Rs"-they just hope that the Right Person will show up at the Right Time with exactly the Right Price.
So knowing your exact retirement goals and how much money it will take to fund them is intertwined with the value of the business. Because, for most business owners, the most signicant portion of their wealth is tied up in the value of the business.
But in asking how much money you will need to provide your retirement lifestyle, a key question which doesn't get enough attention is: "How long are you going to Live?" And here is where we have to ere on the long side.
We all know that we are living longer. Insurance company mortality tables tell us that a child born today will live, on average
74.6 years for a male and 80.9 years for a female. But those numbers are deceiving. Not many men think that they are going to wake up on the morning of their 74.6 years and announce, " Honey, today is my day" and promptly have a heart attack.
If you are a 65 year old business owner with a 65 year old spouse, and just selling your business, the chances of one of you living until age 80 is 94%. The chances of one of you living to age 90 are 63%, and the chances of one you living to age 95 is 36%.
With these kinds of odds, the chances of you living too long could be a problem. We don't want you to end up with "Too much life at the end of the Money!" Clearly, you need to know "How much monthly income will we need?" and "How long do we need to make it Last?" So knowing how much your business is worth today-in cash-is a key question.