What is YOUR lifestyle number?

More often than not, when I ask business owners what their lifestyle number is I hear either “I don’t know” or “I THINK I need (X)”.  


These are smart people. They have built a business with revenues exceeding 5 million dollars, yet despite their hard work and attention to details, they have not asked the right questions nor have they been guided through the right discovery process to find out their true lifestyle number. 


There are three primary factors that will be driving your answer:  


1. What is the value of your current assets that can be used in retirement?   

2. What is the lifestyle that you desire in retirement?  

3. How long do these assets need to last? 



How to discover your lifestyle number. 


Working with our strategic partner, Legacy Planning, our ValuePoints clients leverage a practical tool called the Lifestyle PyramidThis reality-check accounts for assets, expenses and desired lifestyle expectations in order to find “the number the need” for their next chapter. Let’s breakdown the three tiers of the Lifestyle Pyramid: 


Required Expenses.  These are baseline expenses that happen every single month; like utilities, mortgage, insurances, healthcare premiums and food. If you don't pay for them, you're not going to have them. The goal is to have these fundamental expenses paid by guaranteed income sources such as pensions, Social Security, rental income and even annuities. We like to call this mailbox money - it’s income that comes to your mailbox (or direct deposits to your bank account). Every. Single. Month.   


Discretionary Expenses.  Next up are the fun expenses such as travel, vacations, hobbies and dining out. These are fun things in life that we want to do, but we do not necessarily need to do them, hence the term discretionary. And from year to year, they will change as your family changesDiscretionary expenses should be paid for by investment income, such as 401ks, Roth IRAs, joint investment accounts, municipal bond income, or corporate bond incomeJust as your discretionary spend may change over time, the same holds true for investment income (more on this below).   


Gifts and Charity Expenses. At the top of the pyramid are gifts and charities. You may want to make gifts to family members or give to the charities that have meaning for youAgain, we want these gifts and charity donations to be funded by investment income, not your guaranteed mailbox money.    


One very important point: investment income is not guaranteed.  


This means as interest rates change, or dividend rates change, so will the rate of return generated from your investments 


In order to be able to provide for the discretionary spending, gifts and charitable giving on a consistent basis, your plan should make sure that you have enough cash on hand. Specifically, we recommend two to three years worth of cash to fund these categories to stabilize any flux in the market. 


Can you fund your lifestyle for another 30 years? 


Once the Lifestyle Pyramid is complete, you will have created the annual lifestyle number that you need to meet your retirement goals.  Through modeling, we are able to show you a projection of how long your current assets will last based on this annual spend, investment returns and inflation 


Today, if you make it to 65 in relatively good health, you should be planning on living another 30 years. The Lifestyle Pyramid and modeling will tell you whether or not your current assets will fund your ideal lifestyle and for how long. If your lifestyle will out spend your assets then you have found your value gap 


Business Value – Lifestyle Number = Value Gap 


The value gap is the number you need from the sale of the business minus what you need to live not only today, but down the road when you are no longer collecting a regular paycheck, draw or distribution from the business Stop and really let that sink in. 


You need to know this number BEFORE you transition in order to live your Next Chapter on your terms.  


Do you see how important it is that an owner starts working on their Lifestyle Pyramid NOW? Bridging a value gap is so much easier while you are still working in the business with time to build value, unlock wealth and reach desired the financial goals for your next chapter