By Gregg Gonzalez, CFP®
For many business owners, the business is the paycheck: a source of income, identity, and pride built over decades of hard work. But what happens when it’s time to step away? How do you turn the value of your business into a reliable income stream that will support your retirement lifestyle?
Transitioning from business income to retirement income requires more than just selling the company. It involves thoughtful retirement and succession planning, smart tax strategies, and a clear vision for your next chapter.
In this article, we’ll explore how business owners can transform their life’s work into a retirement “paycheck,” with practical steps for navigating a successful exit.
1. Start with the End in Mind: Define Your Retirement Goals
Before making any moves, get clear on what retirement looks like for you:
- Do you plan to fully retire, or stay involved in a consulting or part-time role?
- What lifestyle do you envision: travel, hobbies, relocation?
- How much annual income will you need to support that lifestyle?
- What assets (personal and business) do you have to support it?
These answers will shape everything from your business exit strategy to how you invest and draw income in retirement.
2. Plan Early for the Sale or Succession of Your Business
Selling or transferring a business is a complex process and one that can take years to get right. The sooner you begin planning, the more options (and value) you’ll preserve.
Common exit strategies include:
- Third-party sale to a competitor or private equity buyer
- Internal transfer to a partner or employee group
- Family succession, with careful tax and gifting planning
- ESOP (Employee Stock Ownership Plan), which can offer tax-advantaged liquidity
Work with a financial planner, business valuation expert, and attorney to assess the worth of your business and structure the sale in a way that supports your retirement and minimizes tax burdens.
3. Convert Business Proceeds into Retirement Income Streams
Once your business is sold or transitioned, the proceeds become a central piece of your retirement income plan. The key is creating predictable income from these one-time, often large, cash events.
Income strategies may include:
- Rolling proceeds into tax-deferred accounts (like a SEP IRA or Solo 401(k), if applicable before retirement)
- Setting up systematic withdrawals from a diversified investment portfolio
- Purchasing annuities to guarantee lifetime income
- Using dividend-paying stocks or bonds for steady cash flow
- Establishing a cash reserve for flexibility and emergencies
Your mix of strategies should align with your risk tolerance, income needs, and tax situation.
4. Don’t Overlook Retirement Account Rollovers and Consolidation
Many business owners have a mix of retirement accounts from years of tax-advantaged savings, including:
- SEP IRAs
- Solo 401(k)s
- Traditional or Roth IRAs
- SIMPLE IRAs
After your exit, it may make sense to roll these accounts into a single IRA to simplify management and optimize investment options. Be mindful of tax implications and potential penalties, especially if you’re under age 59½.
Also consider converting some traditional IRA assets to a Roth IRA in low-income years to create tax-free income down the road.
5. Optimize Your Withdrawal Strategy for Tax Efficiency
The order in which you tap into your retirement assets matters and can significantly affect how much you pay in taxes.
A few strategies to consider:
- Withdraw from taxable accounts first, giving tax-deferred assets more time to grow.
- Use capital gains harvesting in low-tax years.
- Delay Social Security to maximize benefits (if other income allows).
- Coordinate withdrawals with your Required Minimum Distributions (RMDs) starting at age 73.
A tax-smart income plan can extend the life of your portfolio and preserve more wealth for your future.
6. Maintain Your Legacy with Estate and Philanthropic Planning
As part of your exit and retirement planning, think about how you want to pass on your wealth: to family, charity, or both.
Strategies may include:
- Creating or updating your estate plan, will, and trust(s)
- Gifting to children or grandchildren now while reducing your taxable estate
- Setting up a Donor-Advised Fund or charitable trust if philanthropy is important to you
- Reviewing life insurance policies that may no longer be needed or may offer liquidity for heirs
Your exit plan is also your legacy plan. Treat it as such.
Final Thoughts: You’re Not Done — You’re Redefining What’s Next
Exiting your business doesn’t mean stepping away from purpose. It means stepping into a new one. Whether you’re focused on relaxing, mentoring others, traveling, or giving back, your retirement “paycheck” should support your dreams, not just your bills.
With proactive planning and a team of trusted advisors, you can transition from business owner to retiree with confidence and the financial freedom to enjoy what comes next.
Need Help Creating a Retirement Income Plan After Selling Your Business?
We specialize in working with business owners before and after transition. Let’s build a custom retirement plan that turns your life’s work into lasting confidence.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.
Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity.
Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
