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Investment 101: A Financial Advisor’s 3-Step Guide to Retiring Comfortably

In uncertain economic times, it can be hard to feel like you have the ability to plan ahead for retirement. Covid-19 in particular has made retirement feel impossible for many who experienced unexpected financial losses in 2020. But by creating a professionally structured financial, estate and tax plan early, you can maximize the value of your business and personal investments, even in a troubled economic climate, and make sure you and your loved ones have the means for a fulfilling future. To get you started, we spoke to Jennifer Messa, JD, LLM, wealth strategy market leader for PNC, about how she helps her clients achieve success. Here are the steps you should take for a comfortable retirement.

Determine If You’re Ready to Retire

“The first step is to prepare a “financial snapshot” to determine if you are able to retire and be secure for the long haul,” says Messa.  Discussing when it’s safe to retire with a business strategist mitigates that risk.

“Say we work with a couple, ‘the Smiths,’ who had built a business, were ready to retire, were charitably inclined and had three heirs,” she says. “First we access the attractiveness of their business by identifying gaps between the optimal and current state to develop an action plan to maximize value. Next, from a personal financial planning perspective, we think in terms of a three-tiered pyramid. The base of the pyramid ensures the senior generation has the wealth, liquidity and cash flow to ensure their financial ‘peace of mind.’”

The second tier focuses on a variety of wealth transfer strategies to move assets to future generations. The third tier focuses on other family goals, if any, such as charitable inclinations, provided it is financially feasible. Setting up tiered finances helps to prioritize a healthy cash flow and maximize the value of your investment, and a plan to transfer funds to relatives will help provide you and your family financial security as you move on.

Maximize Your Investment’s Value

The next step is valuation planning. There are three primary types of valuations: financial, estate and strategic. Generally speaking, financial valuations are estimates of fair market value based on historical and future earnings of the entire company relative to the risk of the business. Estate valuations generally are estimates of fair market value when discounts can be applied for lack of marketability on minority interests and non-voting shares. Strategic valuations occur, and can be higher than financial valuations, when a buyer generates synergistic value by combining companies and is willing to share some the strategic value with the seller.

Every situation is unique, but generally, transfers of minority interests enable family members, to transfer at a lower value, which lowers potential estate taxes, by using appropriate discounts for minority interest transfers via gift or sale. “For a family like the Smiths, I’d recommend dividing the stock into voting and non-voting shares, which can help the senior generation maintain voting control and flexibility to make any changes, as well as potentially assist with tax efficient transfer of business interests to the next generation,” Messa says. “If the family has concerns of litigation or divorce, utilizing a trust structure can provide asset protection for their heirs.”

Prepare Your Successors—in Business and in Family

Success requires more than math when you’re dealing with family. Nearly 70 percent of transitions fail to meet their goals, according to the Exit Planning Institute.

“The primary cause is a lack of communication, which leads to distrust, family disharmony and legal action1,” Messa says. A critical part of Messa’s job is to sit down with the whole family and identify potential conflicts before they go through critical documents with a legal team. An important element of healthy governance and stakeholder harmony is to develop a strong and integrated communication strategy for both the business and family. Long-term, Messa often recommends the business have a family council to identify, train and develop family members to be good stewards of the family wealth.

“We strongly encourage at least one member of the family council to be a member of the corporate board in order to keep the lines of communication open. In the case of common objectives, working together can lead to higher long-term success,” Messa says.

  1. Exit Planning Institute

For more than 160 years, PNC has provided businesses of all sizes with financial guidance to help them meet financial goals. Their business strategists walk business owners through retirement planning, succession plans, family continuity and more. Learn more about PNC and how they can help you transition your business at pnc.com/successionplanning.

The PNC Financial Services Group, Inc. (“PNC”) provides investment consulting and wealth management, fiduciary services, FDIC-insured banking products and services, and lending of funds to individual clients through PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and provides specific fiduciary and agency services to individual clients through PNC Delaware Trust Company or PNC Ohio Trust Company. PNC provides various discretionary and non-discretionary investment, trustee, custody, consulting, and related services to institutional clients through PNC Bank. PNC does not provide legal, tax, or accounting advice, unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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