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NADA has guidance on where to begin business succession planning

November 23, 2010
An obvious retirement-planning goal is to make sure enough money is saved to last as long as the retiree lives. But while the amount of money can be determined, longevity is an uncertain. Also unknown: the retiree's health until death. Financial planning for retirement therefore involves a set of assumptions, some of which should be considered carefully and on a conservative basis. Most people need about 70 percent of their pre-retirement income to maintain a similar living standard during retirement. Specific goals and objectives and any lifestyle changes can impact that threshold. The retirement-planning process should begin by examining current spending patterns. Eliminate any expenses that either will be reduced or eliminated in retirement. Then add expenses that would increase, such as for travel or golf. The result is what money will be needed in retirement. Next, list any expected income sources. Consider the impacts of inflation and income taxes in deciding whether withdrawals can rely on interest income or whether principle must be tapped. Proper asset allocation-the process of determining how much to invest in any one type or class of investment-is perhaps the most important ingredient in a successful retirement plan. For example, an asset allocation mix might include stocks, bonds and real estate, as well as cash and cash equivalents. Assets might be invested in both taxable and tax-free investments, and a large portion of those assets might be in one or more tax-deferred accounts, like a 401(k) or other Individual Retirement Account. During a worker's younger years, the tax-deferred account probably aims mostly at growth-type investments like stocks. When retirement nears, begin to shift to fixed income investments like bonds, or cash equivalents that are less volatile than stocks. A good rule to remember is, the higher the percentage in fixed-income securities, the lower the average annual return and the higher the stability. Since inflation is eternal, it probably is not a good idea to keep all investments in fixed-income securities. Perhaps 20- 30 percent should remain in high quality growth-type securities. The dealership's real estate could be logged in an investment portfolio and considered part of those growth assets. Asset allocation for retirement assets is an important step in the retirement-planning process that deserves advice by one or more investment experts. This information was excerpted from "A Dealer Guide to Business Succession Planning," a management guide developed by the NADA. Order the guide from the NADA at 800-252-6232, ext. 2. Each guide is $25 for NADA members or $50 for nonmembers, plus shipping.