According to the Pension Policy Council (COR), retirees’ standard of living depends increasingly on the wealth they have accumulated during their working lives, in addition to mandatory pensions. This is particularly true for corporate executives, whose retirement income can differ significantly from what they earned while working.
In fact, many business leaders devote a large part of their careers to growing their companies, sometimes at the expense of building a sufficiently diversified personal portfolio. Their company then becomes their primary asset and, in some cases, their main source of future income upon its sale.
However, preparing for retirement is not just about planning for the end of one’s working life. Above all, it involves developing a wealth management strategy that can ensure a sustainable standard of living, diversify sources of income, and preserve the family’s wealth.
This article explains why executives need to plan for this stage several years in advance, what wealth management tools can be utilized, and how long-term assets, such as private equity, can be incorporated into a comprehensive retirement planning strategy.
Why is retirement planning a particular challenge for business leaders?
Preparing for retirement presents unique challenges for business leaders.
Unlike many employees, their assets are often closely tied to their professional activities. A significant portion of their wealth may be concentrated in their company, creating a dependence on the company’s success or its future sale.
This situation calls for a broader approach to wealth planning than simply estimating retirement benefits. The goal is to gradually build personal wealth that can supplement—or even replace—earnings from employment when work decreases or ceases.
Wealth that is often concentrated within the company
For many business leaders, the company is their primary asset.
This concentration can be a powerful driver of value creation, but it also exposes the estate to a specific risk. The value of the business depends, in particular, on its operations, its industry, economic conditions, and the success of a future transfer or sale.
Gradually diversifying your portfolio helps reduce this reliance on a single asset.
Retirement income can vary greatly
The level of income earned during one's working life does not necessarily reflect the income the executive will receive in retirement.
Depending on the company’s legal status, the chosen level of compensation, or the contributions made over the course of one’s career, pensions from mandatory plans may be significantly lower than earned income.
This reality leads many executives to supplement their retirement planning with a long-term wealth management strategy .
Plan several years in advance of retirement
Planning for retirement isn't just about the last few years of your working life.
Building a diversified portfolio, planning for a potential sale of the business, preparing for succession, or gradually adjusting one’s asset allocation are processes that often take several years.
The earlier this planning begins, the more flexibility a business leader has to adapt their wealth management strategy to changes in their personal plans and their company.
What options are available to business executives for planning for retirement?
Planning for retirement generally does not rely on a single solution. Executives often have several wealth management tools at their disposal that can be used in a complementary manner, depending on their goals, investment horizon, and professional situation.
The challenge is to gradually build up a sufficiently diversified portfolio to replace earned income once the business is no longer the primary source of income.
Building Personal Wealth Alongside the Business
For many executives, the first step is to gradually separate their business assets from their personal assets.
A business often accounts for a significant portion of their wealth. However, concentrating the bulk of one’s assets in a single asset can increase dependence on the business’s success or on the terms of its future sale.
Building personal wealth at the same time allows you to gradually diversify your sources of income and reduce this concentration.
Diversifying Asset Classes
Diversification is one of the cornerstones of a long-term wealth management strategy.
Rather than relying solely on the value of their business, many business leaders choose to diversify their wealth across several asset classes with complementary characteristics.
This diversification may include, among other things:
- liquidity to meet cash flow needs;
- financial investments based on the objectives being pursued;
- real estate;
- unlisted assets, such as private equity, when their investment horizon is consistent with the executive's objectives.
The goal is not to seek the best performance within a given asset class, but to build a more balanced portfolio that can weather various economic cycles.
Preparing to Sell Your Business
For some business owners, selling their company is a crucial step in preparing for retirement.
Beyond the operational aspects, this transaction raises several estate planning questions: How should the proceeds from the sale be reinvested? How can the accumulated capital be preserved? How can additional income be generated over the long term? How should the potential transfer of a portion of the estate be organized?
It is generally advisable to begin these discussions several years before the sale in order to gain a comprehensive overview and anticipate the various possible options.
Building a Long-Term Source of Supplemental Income
An executive's retirement often depends on several sources of income.
Mandatory pensions can be supplemented by income from assets accumulated during one's working life, whether from real estate, financial investments, or other investments.
This approach helps ensure that one is not solely dependent on a single source of income and helps strengthen the resilience of one's assets over time.
What role can private equity play in a retirement planning strategy?
Private equity is not intended to replace other components of a portfolio. However, it can serve as a complementary asset class within a long-term strategy when its characteristics align with the executive’s objectives.
Its investment horizon, generally between eight and twelve years, means it should be viewed as a long-term strategy rather than a short-term solution.
A coherent approach with a long-term perspective
Planning for retirement is a process that often spans several decades.
This timeframe is consistent with that of private equity, where investment firms support companies over several years before their sale.
For an executive who begins planning for retirement early enough, this asset class can be part of a long-term wealth management strategy.
Diversifying assets that are often concentrated in the business
Executives often have a significant portion of their assets invested in their own company.
Gradually incorporating unlisted assets—managed by specialized investment teams and invested in a portfolio of companies—can help diversify this exposure while remaining invested in the real economy.
This diversification does not eliminate the risks inherent in private equity, but it can limit the exposure of the portfolio to a single company.
An investment that must be part of an overall strategy
Private equity does not meet all wealth management needs.
Its illiquidity, long-term investment horizon, and risk of capital loss mean that it should be included as part of a broader investment portfolio, alongside other asset classes.
As with any financial decision, its role depends on the executive’s goals, personal circumstances, future needs, and the strategy developed with the professionals advising him or her.
Why should business leaders seek guidance when planning for retirement?
Planning for retirement is not just about choosing investments. For a business executive, this planning is part of an overall wealth management strategy that may also include compensation, the sale of the business, taxation, wealth transfer, and family protection.
Because these topics are closely related, they often require a multidisciplinary approach involving several heritage professionals.
Developing a Coherent Wealth Management Strategy
Every executive faces a different situation.
Professional assets, personal assets, income, plans to sell assets, retirement goals, and family circumstances all directly influence the strategy to be implemented.
The role of wealth management professionals is to analyze all of these factors in order to develop a coherent strategy tailored to the executive’s goals, rather than taking a product-by-product approach.
In particular, this approach makes it possible to determine the role that various asset classes can play within a portfolio, including private equity when it aligns with the investment objectives.
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