By Joe Seetoo, Wealth Advisor and Partner at Morton Wealth
For business owners entering retirement, one of the most pressing questions is, “How will I replace the income my business once provided?” The traditional income solutions of bonds and CDs have become less reliable, while market risks continue to loom. At Morton Wealth, we understand these challenges and are passionate about helping business owners craft income replacement strategies.
The Shift to Retirement
In the 2023 Los Angeles State of Owner Readiness Report, over 75% of business owners expressed that they rely on their business income to support their lifestyle. Transitioning from business ownership to retirement can feel daunting, particularly when the income that sustained you for years must be replaced. As advisors, we focus on three key areas to help ease this transition:
Mindset Shift: Business owners are natural doers. You’ve spent years building value, and it can be challenging to pivot to a spending strategy. Our role is to coach clients through this mental shift, helping you transition from focusing on accumulation to thinking about income distribution.
Financial Planning: A comprehensive financial plan offers clarity and confidence. By understanding how much income is needed to maintain your lifestyle, when to delay Social Security, and how to manage expenses, we can help you build a roadmap for retirement.
It’s Not All or Nothing: Retirement doesn’t have to mean leaving work completely. Staying on as an employee, becoming a consultant, or choosing part-time work can ease the transition. We work with you to understand how these decisions impact your overall financial picture.
Challenges With Traditional Income Options
Bonds and CDs have long been viewed as reliable sources of income. However, their reliability has diminished in recent years. Bonds, once a staple for income generation, have seen fluctuating interest rates that do not always compensate for the risk. Similarly, CDs, despite offering FDIC insurance, often require lock-up periods and come with reinvestment risk—meaning there’s no guarantee the rate will remain favorable when the CD matures.
In light of these limitations, relying solely on traditional income strategies can leave business owners with less security than anticipated.
Expanding Beyond Traditional Investments
At Morton Wealth, we believe in diversifying income streams. Relying on one-dimensional strategies tied to the Federal Reserve’s interest rate policy is not a prudent approach for building dependable cash flow. Instead, we focus on three core investment tenets: risk management, true diversification, and cash flow. This philosophy drives our approach to income replacement through alternative assets, including:
Real Estate Equity: Real estate offers both income and growth potential, making it a hybrid investment. Properties can provide steady rental income while also appreciating in value over time. Additionally, depreciation in the tax code can shelter rental income, providing tax advantages.
Real Estate Loans (First Trust Deeds): Private real estate loans, often referred to as “bridge loans,” help investors bridge the gap between the purchase or renovation of a property and obtaining long-term financing. These loans are secured by the property itself and can offer higher yields, though they come with certain risks such as illiquidity.
Private Diversified Lending: Asset-based loans provide another income source. These loans are generally secured by tangible assets such as inventory, equipment, or real estate, making them more conservative than traditional business loans. With yields that can be 4-5% higher than Treasury rates, they offer attractive returns in today’s market.
Leveraging Unique Tools for Business Owners
Business owners have additional levers to pull when planning their income replacement strategy:
Separating Ownership from Management: By retaining ownership while stepping away from day-to-day management, owners can continue receiving dividends without running the business.
Earnouts: This allows owners to receive additional payments post-sale if certain financial goals are met.
Consulting or Employment Roles: Many owners choose to transition gradually, working part-time or as consultants to continue generating income while adjusting to retirement.
Seller Notes: Owners can receive deferred payments as part of the sale of their business, creating a steady income stream with interest over time.
Securing Your Financial Future
At Morton Wealth, we help business owners design personalized income replacement strategies that go beyond traditional investments. By incorporating alternative assets and thoughtful planning, we work to ensure your retirement years are as financially secure as the business you’ve built.
If you are interested in learning more, please join us at Morton Wealth’s upcoming third annual Investor Symposium at the Westlake Village Inn on Oct 17. Visit mortonwealth.com/investorsymposium for more details and to register.
Joe Seetoo is a Wealth Advisor and Partner at Morton Wealth with over 23 years of experience providing financial planning and wealth management services to business owners and high-net-worth families. Named as one of the 200 most influential leaders in the Greater San Fernando Valley Region by the San Fernando Business Journal for three consecutive years, and the recipient of the Trailblazer award from the same publication, he is a certified Exit Planning Advisor and a member of Provisors. He currently serves as the Founder and President of the Conejo Valley chapter of the Exit Planning Institute as well as the host of The Ripcord Moment, an exit planning podcast.
