Chapter 6 of Running a Family Office Under $100M
Here's something that surprises founders after exit: you still need to pay for life.
Sounds obvious. But when you're running a company, there's usually a salary. Maybe below-market, maybe you took less to preserve equity, but something lands in your account every month. Bills get paid. You don't think about it.
After exit, that stops. You have wealth but no income. A large number on a statement but nothing flowing into your current account.
Most founders default to selling investments when they need cash. Need £50K for a renovation? Sell some stock. School fees? Liquidate a position.
This works. Sort of.
Why Selling As You Go Creates Problems
Every sale triggers a tax event. That £50K you need might require selling £65K of appreciated stock to net £50K after capital gains tax. Do this repeatedly and you're bleeding 20–30% of each withdrawal.
You're also selling at random times. Sometimes markets are up. Sometimes down 25%. If you need cash during a downturn, you're liquidating at the worst moment — locking in losses and missing the recovery.
And there's a psychological cost. Watching your portfolio shrink creates anxiety even when you have plenty. Some founders start restricting spending not because they need to but because selling feels like failure.
A founder had $18M after exit. Comfortable by any measure. Three years later he was stressed about money — not because he'd overspent, but because he'd watched his portfolio drop from $18M to $14M through withdrawals and a market correction. He wasn't in trouble. But constant selling had created a scarcity mindset that didn't match reality.
The Income Floor Concept
There's a different way to think about this: separate your portfolio into growth assets and income assets. Growth assets compound untouched. Income assets fund your life.
The Income Floor is the amount of reliable income needed to cover baseline lifestyle. Not aspirational. Not luxury. Just non-negotiable expenses regardless of what markets do.
What goes into that number? Housing, insurance, utilities, food, healthcare, children's education, basic travel. For most founders in this wealth range, it lands somewhere between £150K and £400K annually. Could be more with expensive fixed costs, less with simpler lifestyle.
Once you know that number, you can think about what capital would be needed to generate it, and what mix of income sources might work for your situation.
Market drops 30%? Income keeps flowing. Nothing gets sold. No panic. Maybe even an opportunity to buy more at lower prices because lifestyle isn't threatened.
This is the peace of mind that lets you actually enjoy wealth instead of worrying about it.
How Much Capital?
The math is straightforward. If you need £250K annually and can generate 5% yield, you need £5M allocated to income strategy. At 6%, roughly £4.2M. At 4%, more like £6.25M.
Yield depends on what sources you use and what trade-offs you're willing to accept. Higher yield generally means more risk or less liquidity. No magic here — just trade-offs to understand.
What yield is realistic? That depends on your situation, risk tolerance, and what you're comfortable holding. Worth exploring with advisors who know your full picture. But understanding the categories helps you ask better questions.
Income Sources Worth Understanding
Different assets generate income in different ways. Some thoughts on what exists, not recommendations on what's right for any particular situation.
Private credit has become genuinely interesting. These are loans to companies — often mid-market businesses that don't access public bond markets. Yields have been running 9–12%, sometimes higher.
The trade-off is illiquidity. Capital typically locked for 2–5 years. And credit risk is real — if borrowers default, you lose money. But for founders who can tolerate illiquidity (and having waited years for equity to vest, many can), it's worth understanding how this works.
Access used to require $1M+ minimums. That's changed. Platforms have opened up access at lower thresholds. Quality varies significantly, so diligence matters.
I find private credit interesting because it behaves differently from public markets. In 2022, when both stocks and bonds dropped, private credit kept paying because those loans didn't reprice with daily market sentiment. Founders I talked to during that period noticed the difference — their private credit income arrived steadily while everything else was volatile.
That's not an argument for or against it. Just an observation about how it behaves.
Investment-grade bonds are the traditional answer. Corporate bonds from solid companies, government bonds from stable countries. Yields currently around 5–6% for corporates, 4–5% for government.
Less interesting than private credit but more liquid. You can sell if needed. Default risk on investment-grade is minimal. This is the conventional, well-understood option. Nothing wrong with conventional when it works.
Dividend equities offer income with growth potential. Dividend-paying stocks yield 2.5–4%, and those dividends tend to grow over time.
The catch: these are still stocks. They drop with markets. A 30% market decline means your dividend portfolio drops too, even if dividends keep flowing. So it's income with volatility attached.
Real estate can generate 4–8% yields depending on location and property type. Rental income is relatively stable, plus appreciation over time.
But being a landlord isn't passive. Tenants, maintenance, vacancies, management decisions. Some people enjoy this. Many founders don't want another operating responsibility after exit. REITs offer real estate income without direct ownership, but they move with stock markets and lose some diversification benefit.
What Matters More Than Exact Mix
The specific blend of income sources matters less than a few principles:
Dedicated capital with a clear job. Mentally separate the income allocation from growth assets. Different purpose, different expectations.
Reliability over maximization. The goal isn't highest possible yield. It's income that arrives regardless of what markets do. Chasing yield often means accepting risks that defeat the purpose.
Match to your actual needs. If your Income Floor is £150K and you hate complexity, simple solutions work fine. If it's £400K and you can handle complexity, the toolkit expands.
Liquidity awareness. Some income sources lock up capital for years. Know what you're committing to and make sure you're not over-allocated to things you can't access.
The right mix varies by person. Tax situation matters. Existing assets matter. What you already understand matters. This is where working with someone who knows your full picture becomes important — not to outsource the decision but to stress-test your thinking.
When This Matters Most
The Income Floor concept proves itself during downturns.
In March 2020, markets dropped 35% in weeks. I watched founders navigate this two different ways. Those without an income strategy faced a choice — sell at the bottom or cut spending dramatically. Neither felt good. Some did both.
Those who'd built income allocations kept receiving their payments. They didn't sell anything. A few used excess cash to buy at depressed prices. When markets recovered, they were better positioned.
2022 was different but similar lesson. Stocks and bonds both dropped — the traditional 60/40 portfolio offered no hiding place. But income from sources that don't reprice daily kept arriving. The experience was completely different for founders who had it versus those who didn't.
Having income that doesn't depend on selling assets changes how you experience volatility. Market drops stop being emergencies. They become either neutral events or buying opportunities.
Lifestyle Creep Warning
One thing to watch. Reliable income can enable lifestyle inflation if you're not paying attention.
When income flows steadily, spending tends to expand. The £250K lifestyle becomes £300K, then £350K. You don't notice because you're not selling assets — money arrives and gets spent.
Then you realize the Income Floor has grown but the allocation supporting it hasn't kept pace. Either you're dipping into growth assets or feeling squeezed despite substantial wealth.
Worth building some friction into the system. Define the Income Floor clearly. Review it annually. If lifestyle genuinely changes — kids start university, parents need care — adjust consciously. Don't let it drift upward unexamined.
Some founders deliberately build income capacity slightly above their defined floor. Generates a buffer for unexpected expenses without touching growth assets. Others keep it tight to maintain discipline. Personal preference.
Tax Considerations
Income gets taxed as income. Usually worse than capital gains rates.
£300K flowing from income sources faces your marginal rate — potentially 45% or more. That £300K gross becomes significantly less net.
Structure can change this. Income earned inside certain wrappers gets different treatment. The source of income matters — dividends taxed differently than interest. Holding period can matter.
This is genuinely complex and varies entirely by individual situation. General guidance is mostly useless here. Work with tax advisors who understand your complete picture before building an income strategy. The difference between thoughtful and careless structuring can be substantial.
Getting Started
If you're building this from scratch post-exit, the framework matters more than speed.
Figure out your actual number. What do you need annually to cover non-negotiable expenses? Be honest — not aspirational, not minimal.
Understand what capital that implies at realistic yields.
Learn about the categories that might work for your situation. Private credit, bonds, dividend equities, real estate — each has trade-offs worth understanding.
Work with advisors to think through what mix might make sense given your tax situation, liquidity needs, and existing assets.
Build gradually. This doesn't need to happen in 60 days. Income sources take time to research and access. Better to take 6–12 months and get it right than rush into things you don't fully understand.
The point isn't optimizing for maximum yield. It's building something reliable enough that your growth portfolio can compound in peace, and you can stop thinking about where next month's expenses come from.
That peace of mind is worth more than any incremental percentage point.
← Back to Chapter 5: Portfolio Construction
Continue to Chapter 7: Building Your Advisory Team →
Income Generation Strategies
Chapter 6 of Running a Family Office Under $100M
Here's something that surprises founders after exit: you still need to pay for life.
Sounds obvious. But when you're running a company, there's usually a salary. Maybe below-market, maybe you took less to preserve equity, but something lands in your account every month. Bills get paid. You don't think about it.
After exit, that stops. You have wealth but no income. A large number on a statement but nothing flowing into your current account.
Most founders default to selling investments when they need cash. Need £50K for a renovation? Sell some stock. School fees? Liquidate a position.
This works. Sort of.
Why Selling As You Go Creates Problems
Every sale triggers a tax event. That £50K you need might require selling £65K of appreciated stock to net £50K after capital gains tax. Since October 2024, higher-rate taxpayers pay 24% CGT on most gains (up from 20%). The annual CGT allowance has shrunk to just £3,000. Do this repeatedly and you're bleeding a quarter of each withdrawal to HMRC.
You're also selling at random times. Sometimes markets are up. Sometimes down 25%. If you need cash during a downturn, you're liquidating at the worst moment—locking in losses and missing the recovery.
And there's a psychological cost. Watching your portfolio shrink creates anxiety even when you have plenty. Some founders start restricting spending not because they need to but because selling feels like failure.
A founder I know had £18M after exit. Comfortable by any measure. Three years later he was stressed about money—not because he'd overspent, but because he'd watched his portfolio drop from £18M to £14M through withdrawals and a market correction. He wasn't in trouble. But constant selling had created a scarcity mindset that didn't match reality.
The Income Floor Concept
There's a different way to think about this: separate your portfolio into growth assets and income assets. Growth assets compound untouched. Income assets fund your life.
The Income Floor is the amount of reliable income needed to cover baseline lifestyle. Not aspirational. Not luxury. Just non-negotiable expenses regardless of what markets do.
What goes into that number? Housing, insurance, utilities, food, healthcare, children's education, basic travel. For most founders in this wealth range, it lands somewhere between £150K and £400K annually. Could be more with expensive fixed costs, less with simpler lifestyle.
Once you know that number, you can think about what capital would be needed to generate it, and what mix of income sources might work for your situation.
Market drops 30%? Income keeps flowing. Nothing gets sold. No panic. Maybe even an opportunity to buy more at lower prices because lifestyle isn't threatened.
This is the peace of mind that lets you actually enjoy wealth instead of worrying about it.
How Much Capital?
The maths is straightforward. If you need £250K annually and can generate 5% yield, you need £5M dedicated to income. At 6%, roughly £4.2M. At 4%, more like £6.25M.
Yield depends on what sources you use and what trade-offs you're willing to accept. Higher yield generally means more risk or less liquidity. No magic here—just trade-offs to understand.
What yield is realistic? That depends on your situation, risk tolerance, and what you're comfortable holding. Worth exploring with advisors who know your full picture. But understanding the categories helps you ask better questions.
Income Sources Worth Understanding
Different assets generate income in different ways. Some thoughts on what exists, not recommendations on what's right for any particular situation.
Private Credit
Private credit has become genuinely interesting for income-focused investors. These are loans to companies—often mid-market businesses that don't access public bond markets.
The numbers are compelling. Morgan Stanley reports direct lending returned 10.5% annualised in Q4 2024, beating both high-yield bonds and leveraged loans. During periods of rising rates since 2008, direct lending returns averaged 11.6%—about two percentage points above its long-term average. The asset class has grown to nearly $2 trillion globally, with $1.34 trillion in the US alone.
Lord Abbett's research shows private credit typically yields 2–4% more than comparable public credit, largely because investors are compensated for lower liquidity. Hamilton Lane notes that even with rate cuts, forward SOFR rates suggest investors will benefit from 200–300 basis points of enhanced yield compared to the decade before 2022.
The trade-off is illiquidity. Capital typically locked for 2–5 years. And credit risk is real—if borrowers default, you lose money. But for founders who can tolerate illiquidity (and having waited years for equity to vest, many can), it's worth understanding how this works.
Access used to require $1M+ minimums. That's changed. Platforms and BDCs (Business Development Companies) have opened up access at lower thresholds. Quality varies significantly, so diligence matters.
I find private credit interesting because it behaves differently from public markets. In 2022, when both stocks and bonds dropped—the Bloomberg Global Aggregate Bond Index fell 16%—private credit kept paying because those loans didn't reprice with daily market sentiment. Founders I talked to during that period noticed the difference—their private credit income arrived steadily while everything else was volatile.
That's not an argument for or against it. Just an observation about how it behaves.
Investment-Grade Bonds
Investment-grade bonds are the traditional answer. Corporate bonds from solid companies, government bonds from stable countries.
Current UK yields (December 2025):
- 10-year gilts: ~4.5%
- 2-year gilts: ~3.7%
- 30-year gilts: ~5.2%
- Investment-grade corporate bonds: 5–6%
- High-yield corporate bonds: ~6%+
These yields are meaningfully higher than the near-zero rates that prevailed from 2009 to 2021. Bonds have become an actual income source again rather than just ballast.
Less interesting than private credit but more liquid. You can sell if needed. Default risk on investment-grade is minimal—Moody's data shows average default rates on European high-yield bonds over the past decade were 3.3%, and investment-grade defaults are far rarer. This is the conventional, well-understood option. Nothing wrong with conventional when it works.
Dividend Equities
Dividend equities offer income with growth potential.
The FTSE 100 currently offers a forward dividend yield of around 3.5% for 2025, according to AJ Bell's dividend monitor. The index is expected to pay roughly £80 billion in dividends this year. Adding share buybacks, total cash returns to shareholders should exceed £119 billion—about 5.25% of the FTSE 100's £2.3 trillion market capitalisation.
Individual high-yielding stocks can pay more. British American Tobacco yields around 5.6%, Legal & General around 7%. But concentration in individual names adds risk.
The catch: these are still stocks. They drop with markets. A 30% market decline means your dividend portfolio drops too, even if dividends keep flowing. So it's income with volatility attached.
There's also a tax efficiency point. Dividend income is taxed at 8.75% for basic-rate taxpayers, 33.75% for higher-rate, and 39.35% for additional-rate. Better than the 45% marginal rate on interest income—though the dividend allowance has shrunk to just £500.
Real Estate
UK property can generate reasonable yields depending on location and property type. Current gross rental yields:
Fleet Mortgages reports average rental yields in England and Wales hit 7.4% in Q4 2024.
But being a landlord isn't passive. Tenants, maintenance, vacancies, management decisions. Some people enjoy this. Many founders don't want another operating responsibility after exit.
REITs offer real estate income without direct ownership, but they move with stock markets and lose some diversification benefit. Private real estate funds provide diversification and professional management but charge fees and lock up capital for years.
Match the approach to your involvement level. If you want to be hands-on and enjoy it, direct ownership. If you want exposure without involvement, funds or REITs.
What Matters More Than Exact Mix
The specific blend of income sources matters less than a few principles:
Dedicated capital with a clear job. Mentally separate the income allocation from growth assets. Different purpose, different expectations.
Reliability over maximisation. The goal isn't highest possible yield. It's income that arrives regardless of what markets do. Chasing yield often means accepting risks that defeat the purpose.
Match to your actual needs. If your Income Floor is £150K and you hate complexity, simple solutions work fine. If it's £400K and you can handle complexity, the toolkit expands.
Liquidity awareness. Some income sources lock up capital for years. Know what you're committing to and make sure you're not over-allocated to things you can't access.
The right mix varies by person. Tax situation matters. Existing assets matter. What you already understand matters. This is where working with someone who knows your full picture becomes important—not to outsource the decision but to stress-test your thinking.
When This Matters Most
The Income Floor concept proves itself during downturns.
In March 2020, markets dropped 35% in weeks. I watched founders navigate this two different ways. Those without an income strategy faced a choice—sell at the bottom or cut spending dramatically. Neither felt good. Some did both.
Those who'd built income allocations kept receiving their payments. They didn't sell anything. A few used excess cash to buy at depressed prices. When markets recovered, they were better positioned.
2022 was different but similar lesson. Stocks and bonds both dropped—the Bloomberg Global Aggregate Bond Index fell 16.1%, while the S&P 500 dropped 18.1%. The traditional 60/40 portfolio offered no hiding place. But income from sources that don't reprice daily kept coming. Private credit continued paying 10%+ yields while public markets tumbled. The experience was completely different for founders who had it versus those who didn't.
Having income that doesn't depend on selling assets changes how you experience volatility. Market drops stop being emergencies. They become either neutral events or buying opportunities.
Lifestyle Creep Warning
One thing to watch. Reliable income can enable lifestyle inflation if you're not paying attention.
When income flows steadily, spending tends to expand. The £250K lifestyle becomes £300K, then £350K. You don't notice because you're not selling assets—money arrives and gets spent.
Then you realise the Income Floor has grown but the allocation supporting it hasn't kept pace. Either you're dipping into growth assets or feeling squeezed despite substantial wealth.
Worth building some friction into the system. Define the Income Floor clearly. Review it annually. If lifestyle genuinely changes—kids start university, parents need care—adjust consciously. Don't let it drift upward unexamined.
Some founders deliberately build income capacity slightly above their defined floor. Generates a buffer for unexpected expenses without touching growth assets. Others keep it tight to maintain discipline. Personal preference.
Tax Considerations
Income gets taxed as income. Usually worse than capital gains rates.
For 2025/26, here's what you're working with:
Income tax rates:
- Basic rate: 20% (up to £37,700 above personal allowance)
- Higher rate: 40% (£50,271 to £125,140)
- Additional rate: 45% (above £125,140)
The personal allowance (£12,570) disappears entirely once income exceeds £125,140—you lose £1 for every £2 earned above £100,000.
£300K flowing from interest income faces your marginal rate of 45%. That £300K gross becomes roughly £165K net after income tax. You've handed 45% to HMRC.
Contrast with capital gains:
- Basic rate: 18%
- Higher/additional rate: 24%
And dividends:
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
Structure can change this significantly. Income earned inside pensions or ISAs gets different treatment. Dividend income is taxed more favourably than interest. Company structures (dividend extraction rather than salary) can improve tax efficiency. Holding period and asset location matter.
This is genuinely complex and varies entirely by individual situation. General guidance is mostly useless here. Work with tax advisors who understand your complete picture before building an income strategy. The difference between thoughtful and careless structuring can be substantial—easily tens of thousands annually.
Getting Started
If you're building this from scratch post-exit, the framework matters more than speed.
Figure out your actual number. What do you need annually to cover non-negotiable expenses? Be honest—not aspirational, not minimal.
Understand what capital that implies at realistic yields. At 5% yield, £200K income requires £4M of income-generating capital. At 6%, closer to £3.3M.
Learn about the categories that might work for your situation. Private credit, bonds, dividend equities, real estate—each has trade-offs worth understanding.
Work with advisors to think through what mix might make sense given your tax situation, liquidity needs, and existing assets.
Build gradually. This doesn't need to happen in 60 days. Income sources take time to research and access. Better to take 6–12 months and get it right than rush into things you don't fully understand.
The point isn't optimising for maximum yield. It's building something reliable enough that your growth portfolio can compound in peace, and you can stop thinking about where next month's expenses come from.
That peace of mind is worth more than any incremental percentage point.
