Business owners are often faced with a common question: “How much do I need to be able to retire and live the way I want to live?” What seems like a fairly simple question can quickly be muddied up by any one of the unique variables in the sale of a business, but let’s look at an example to see how this could play out.
First, you’ll need to calculate your annual expenses. For this example, we’ll say they’re $100,000 per year.
Next, let’s assume you and a spouse will receive about $40,000 per year in Social Security. This leaves us a $60,000 gap to plan for.
Typically, the average retiree needs about 25 times their annual expenses in retirement savings to maintain their lifestyle without creating needless worry about their savings and investments.
$60,000 times 25 equals $1,500,000 needed after tax. Let’s figure an average blended tax rate of about 30%, and we see you’ll need about $2,250,000 from the sale of the business to be able to fund your lifestyle in retirement.
Of course, that’s just the beginning. There are many other factors to consider, but hopefully it gets you thinking about the possibilities.
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