CHAPTER 20

Understand How Your Family Business Changes in Retirement

Your family business changes in retirement, but there’s still plenty to get right to optimize your assets, protect your spending power, and help your heirs. Section V provides the tools.

Upon retirement, the objectives and constraints of your asset management business change, and so must the way you manage your capital. During your career, as discussed in Chapter 7, the primary objectives of your asset management business include pursuing appreciation to support future consumption during retirement and providing contingency capital for unlikely and infrequent shortfall events. With a contingency reserve as a bulwark against forced selling of equities to cover a shortfall, investors can benefit by holding significant equity investments, accepting greater short-term volatility in exchange for greater long-term appreciation.

So long as you’re actively employed, you can often mitigate financial setbacks by working longer or taking out a loan. Retirement is different. The objectives of the family asset management business and the family’s risk tolerance change meaningfully. The primary objectives of your asset management business changes from providing appreciation and contingency capital to funding annual consumption while providing growth and appreciation for future years. This results in a shorter expected investment duration and less ability to withstand major volatility. At the same time, Family Inc. loses ...

Get Family Inc. now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.