Will Selling Your Business Be Enough to Retire? (The Wealth Gap Test)

A manufacturing founder received a $60 million LOI — and then realized the net proceeds wouldn’t support his retirement vision. Don’t let this happen to you.

For most business owners, the business isn’t just an asset. It’s the retirement plan.

You’ve poured your working life into building something. And the implicit assumption — rarely spoken out loud, but deeply held — is that when the time comes to sell, the proceeds will take care of everything. The retirement. The house. The travel. The family legacy.

Sometimes that assumption is correct. Often, it’s more complicated than that.

According to a 2022 MassMutual study, only 46% of business owners believe they’re on track with their retirement savings. And 65% have less than $100,000 saved outside of the business itself. That means for the majority of business owners, the sale is the retirement.

That’s not necessarily a problem. But it needs to be a plan — not an assumption.

The Wealth Gap: What It Is and Why It Matters

The Wealth Gap is simple: it’s the difference between what you’ll actually net from the sale of your business and what you’ll need to fund your retirement.

Getting clear on this number — before you go to market, ideally years before — is one of the most valuable things you can do as a business owner.

Step 1: Define Your Retirement Number

What does your retirement actually cost? This sounds like a simple question, but most owners have never sat down and done the math.

A useful starting point is the 4% rule: estimate your annual retirement expenses, then multiply by 25. That’s roughly the nest egg you’d need to sustain your lifestyle indefinitely at a 4% annual withdrawal rate.

For example: if you want to spend $200,000 per year in retirement (including travel, healthcare, and giving), you need approximately $5 million in invested assets.

Don’t forget to account for:

• Healthcare costs before Medicare eligibility (age 65) — these can be substantial

• Inflation over a 20–30 year retirement

• Legacy goals: what do you want to leave to family or charity?

• A potential long-term care need

• Social Security income, which reduces how much you’ll need from investment assets

Sit with this number. It might be uncomfortable. But knowing it is far better than discovering it after the wire transfer.

Step 2: Calculate What You’ll Actually Net From the Sale

The purchase price is not what you take home. Between the headline number and the money in your account, several things reduce your proceeds:

• Federal and state taxes on capital gains (often 25–35% combined for high-income sellers in taxed states)

• Depreciation recapture, taxed at ordinary income rates

• M&A advisor or broker fees (typically 5–10% of the transaction)

• Seller financing — if you carry a portion of the purchase price as a note, that money arrives over years, not at closing

• Earnout provisions — contingent payments tied to future business performance

• Working capital adjustments and closing costs

A $5 million sale might net $3.0–3.5 million after taxes and fees. A $10 million sale might net $6.5–7.5 million. These aren’t small differences, and they need to be accounted for before you decide whether you’re ready to sell.

Step 3: Calculate Your Wealth Gap

The Wealth Gap is straightforward:

Retirement Number – Net Proceeds = Your Wealth Gap

Example: You need $5 million to retire comfortably. Your business is worth $6 million, but after taxes, fees, and a partial seller note, you’ll net roughly $4 million at closing. Your Wealth Gap is $1 million.

If the gap is zero or negative (you have more than enough), you can move forward with confidence. The question shifts to how and when to sell, not whether the proceeds will be sufficient.

If there’s a gap, you have options — and time to use them if you start early enough.

What to Do If There’s a Gap

Option 1: Grow the business before selling

A business with $2 million EBITDA versus $1.5 million EBITDA isn’t just 33% more valuable — it compounds. At a 5x multiple, that improvement adds $2.5 million to your sale price. Staying in the business 2–3 more years to drive EBITDA higher is often the single most valuable thing you can do for your retirement.

Option 2: Consider owning your real estate

Many business owners who own the property their business operates in sell the business but retain the real estate. They then lease the property to the new owner. Rental income post-sale is often more reliable and in some cases exceeds the interest income from the same amount of invested sale proceeds.

This strategy needs to be set up years in advance. If you rent your space and have been thinking about owning it, this is a reason to act sooner.

Option 3: Structure the sale to supplement retirement income

Seller financing and earnouts aren’t just buyer-friendly structures — they can also be designed as income streams for the seller. A $500,000 seller note at 6% generates $30,000 per year in interest income. That’s not nothing.

Work with your advisors to think about deal structure not just as a negotiating issue, but as a retirement income planning tool.

What to Do If You’re Covered

If your net proceeds exceed your retirement number, congratulations — and don’t rush.

One of the most common and expensive mistakes post-sale is moving too quickly from operating mode into investing mode. You’ve just liquidated one highly concentrated asset. The last thing you want to do is leap into another one.

Park the proceeds safely. Build your post-sale financial team. Take 90 days to think clearly before making significant investment decisions. We’ll cover this in detail in the next article.

The Most Important Takeaway

Whether you’re 5 years from selling or 15 years away, the time to run this analysis is now.

Knowing your Wealth Gap changes the decisions you make. It changes how you invest in the business, how you compensate yourself, whether you focus on EBITDA or revenue growth, whether you buy your building, whether you start a retirement plan this year.

The sale of your business can absolutely fund an extraordinary retirement. But only if you design it that way.