what are the guarantees?
by ed mendlowitz
202 questions and answers: managing an accounting practice
question: i’ve heard you say that you shouldn’t count on anything from your practice when you decide to retire. are you serious?
response: i probably said that, but it was in the context of planning for guaranteed cash flow in retirement. a practice’s value is never guaranteed until the checks clear.
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i did say that it is important to create an asset base for retirement and that these can come from a number of sources – and we each need to assign an importance to each source and a probability of their providing a comfortable retirement.
here are what i see are the probable sources:
- social security
- tax-sheltered/deferred savings (pensions, iras, annuities and insurance)
- savings and investments not in tax-deferred accounts; this includes liquid and non-liquid assets
- proceeds from sale of your practice or retirement buyout
- sale of your residence
- your children or other family members
which of the above are guaranteed?
social security will be guaranteed, but won’t be enough for most of our retirements.
tax-sheltered savings as well as liquid assets in non-tax-deferred accounts are guaranteed and will provide a source of cash flow. illiquid assets shouldn’t be counted on.
selling your practice is not a guaranteed way and will be subject to many factors including the ability of the buyer to make all the payments. also, your cash flow will only be the after-tax return on the investment of the net proceeds.
selling a residence is baloney – you will always need to live somewhere and nursing homes and senior residences are pretty expensive. an alternative is taking perpetual cruises – in inside rooms – figure it out – much cheaper, and possibly better treatment because you are their customer.
your children – ha ha. you might be lucky if you don’t have to support them.
my “guaranteed” solution: maximize your annual contributions to tax-sheltered accounts and try to save something extra in your own names. invest wisely and don’t be stupid!