The Best Time to Begin Thinking About Retirement Is In Your 40s
 
It’s easy to understand why many business owners avoid preparing for their retirement. The day-to-day operations of running a successful business often leave little time for thinking far into the future. And for many, the subject is a difficult one to address.

Many owners have coddled and nurtured their businesses from the ground up, and the mere thought of stepping away can be emotion-filled. Often, so many physical, financial and emotional resources are poured into the business, that it’s difficult to find a separate identity. The business becomes like another child, and the thought of abandoning it can be agonizing.

The owner who truly loves his or her work may want to think that the job can continue indefinitely. The rush of adrenaline after sealing a deal or the burst of pride upon seeing a new product move down the assembly line can be heady stuff. And for some owners, especially those whose businesses are so demanding they’ve had little time to develop other hobbies, there’s nothing better than going to work each morning. The owner who finds confrontation especially difficult may even go one step further and decide it’s best to do nothing at all, thinking that once gone, others can deal with the issues.

No action, however, can create tremendous problems and heartache for everyone involved. Dying without preparing for succession can be costly from a tax standpoint. A business left without a successor often cannot succeed. Survivors and employees dependent on that income may need to make dramatic changes in order to continue current lifestyles.

Oftentimes however, the small business owner realizes the need before death occurs. For some a health problem like a mild heart attack, either personally or of a close friend, turns thinking inward. For others, a less dramatic chain of events, like paying the youngest child’s last college tuition bill or finding a potential retirement home during a vacation, sets the wheels in motion.

The earlier this “awakening” occurs, the better. As a business owner, the best time to begin thinking about retirement is in your 40s. At this age, time is on your side, and many options are available. Less money is needed because funds can be accumulated over a greater period of time.

In the 50s, as the calendar pages seem to turn more rapidly, the need intensifies. A more aggressive strategy is necessary because there is less time until retirement.

The owner who waits until his or her 60s or 70s has even fewer options. If no one has been groomed to take over the business, it might be difficult or impossible to find someone who can quickly step up to the plate. The owner might have to sell the business in order to free capital for retirement, long term health care or other needs. Even at this late date, however, it is better to take action than to totally ignore the issue or wait until more urgent measures must be taken.

The actual retirement plan will differ markedly depending on the status of the company and the number of owners involved. Nevertheless, for sole proprietors or owners who share their business with several others, the process of developing that plan requires the same basic process.

Those steps include:

1. Envision the future and create a dream for yourself. Do you envision totally walking away from the business some day, or would you like to always remain involved in the major decision-making? Does the idea of serving as a consultant, on a regular basis or as needs arise, appeal to you? Do you want to remain in your current home, or would you like to move, year-round or part time, to another area? Are more frequent, longer vacations a goal?

2. Insert a dose of realism to those dreams. At what ages would you like to make changes? How much money do you need to live comfortably? As difficult as it is to imagine, what changes would be needed if you or a spouse were to die?

3. Network. Form alliances with other business owners to discuss ways of dealing with specific issues. Community service organizations such as the Jaycees, the Rotary Club, and the Chamber of Commerce provide forums for meeting and talking to other people with similar concerns. You might also want to develop a panel of experts who can advise you on a more formal basis. Other sources of information can be found on the Internet, through family business centers, or business departments on college campuses.

4. Bring in the experts. Ask your accountant, lawyer and insurance agent for advice. Develop a team that can help you achieve your goals.

5. Formalize the plan. Put your strategy in writing and address other issues regarding the business, including the succeeding management team. Inform key players about your plan and, if possible, involve them in its development.

6. Remember that no retirement plan is ever cast in bronze. A solid plan should be flexible enough to accommodate changing wishes and needs.

7. Put the plan to work and enjoy your retirement years!

A well thought out retirement plan can give you wings. By freeing capital and finding ways to make your money work for you, a retirement plan can give you the freedom needed to make your Golden Years truly golden.
 
 
Source: The Northwestern Mutual Life Insurance Company
 
About the Author
Michael K. Lallana is a Northwestern Mutual Financial Network Representative who helps clients attain financial security for their families and businesses. He is committed to providing innovative solutions using world-class insurance services and internationally recognized investment products. You can learn more about Mr. Lallana and his financial planning strategies by visiting http://www.nmfn.com/michaellallana

Pay attention to the financial glue that holds things together.

Now that the federal estate tax has been “repealed,” what effect will this have on your need for life insurance? Most people will need at least as much as they already have, if not more.

Some people had jumped to the conclusion that with repeal, they would no longer need the insurance; that is, if they had bought it to pay estate taxes. Nothing could be further from the truth.

Continuing Needs 
If you needed life insurance before, you will probably need it now and in the future, though the reasons for having it could well change over time.

Federal estate tax. For people who have already bought or are considering buying life insurance to pay estate taxes, debts, and estate costs, these policies will still be needed. Besides, later on it may be harder or much more expensive to get the same coverage.

As noted in the previous article, the new law gradually raises the amount of your estate that’s exempt from the tax to $3.5 million in 2010; also, the old top tax rate of 55% is reduced, in steps, to 45% by 2009—still a hefty rate that could theoretically take nearly half of some estates. Then, in 2010, the estate tax is repealed altogether-there would be no federal estate tax at all for someone dying in 2010. But die in 2011 and afterwards, and the old estate tax system is brought back to life, with a 55% top tax rate and an estate exemption of only $1 million to shield you from the tax.

Certainly people are not going to base their estate plans on a zero federal estate tax, hoping to die in 2010; and, as a practical matter, they might not be faced with the higher tax rates and lower exemption of dying in 2011 and beyond.

Though with the gradual increase in the estate exemption, smaller and mid-sized estates will be less concerned with the tax, estate taxes are still a threat to larger estates. The point is that the federal estate tax is with us now and it will be there over the next decade, and is scheduled to return in full later on.

State estate tax.  And then there is the question of state estate taxes. Not all states have one, but many do, so liquid funds will be needed to pay them. Many states are running into a decline in their overall tax receipts, and these shortfalls are compounded by the fact that some states are expecting to receive much less from the credit against the federal estate tax as allowed under the present tax system.

Capital gains tax. When the federal estate tax is “repealed” in 2010—unless Congress changes this before then-heirs could be hit with higher capital gains taxes when they sell assets. The basis of assets received by an heir will carry over from the decedent, rather than being stepped up to date-of-death value as under current law. Heirs will have to determine the cost of each asset at the time it was acquired by the deceased owner—which could have been decades before the decedent died.

Although a decedent’s estate will be able to increase the basis of its assets by up to $1.3 million, and for assets transferred to a surviving spouse, an additional $3 million, the net effect is that some of the estate tax savings of the new law could eventually go in higher capital gains taxes. Again, this points to the continuing need for life insurance.

Great Expectations 
Regardless of what changes may be made in the federal estate tax law, the present can be a stepping-off point for the creative use of life insurance in helping solve family and business security problems.

For family. Life insurance will be needed in the future for the same reasons as in the past, maybe more so. Many Americans are enjoying a standard of living far beyond anything they had thought possible. As always, if the “good life” is to continue, it depends on someone “bringing home the bread.” To protect against loss of the breadwinner, properly arranged life insurance may be the only realistic way to assure that capital will be available to the family to replace the needed income, regardless of when death might occur.

For business. And for people who own businesses, life insurance will continue to play a key role, possibly even a greater role than before. To the extent that there is less emphasis on the need for liquidity to pay estate taxes if this should ever be the case-there will be greater emphasis on protecting a business and its owners through life-insurance—funded buy-sell plans.
 
Source: CreativeLiving Magazine, Winter 2002, The Northwestern Mutual Life Insurance Company
 
About the Author
Michael K. Lallana is a Northwestern Mutual Financial Network Representative who helps clients attain financial security for their families and businesses. He is committed to providing innovative solutions using world-class insurance services and internationally recognized investment products. You can learn more about Mr. Lallana and his financial planning strategies by visiting http://www.nmfn.com/

Disability, and the resulting loss of income, can be a major threat to your business. Most small-business owners carry casualty insurance policies to protect their companies against unexpected events — fire and other property damage, product liability and risks stemming from officers’ and directors’ errors or omissions. They may also offer employees such as life and health insurance.

Sadly, many small-business owners fail to prepare for an event that could threaten the company’s success and, perhaps, its very survival: the real possibility that they or key employees would have to stop working because of a permanent or long-term disability.
 
The Odds
According to the Harvard Law School and Harvard Medical School, nearly half of all Americans filing for bankruptcy do so because of medical expenses.* Do you know what your odds are of becoming disabled? Here are some figures that may surprise you.
 
Odds of Becoming Disabled Before Reaching Age 65**
 
 Age      Male   Female     
 
  25       20%   32%     
 
 
  35       19%   29%     
 
 
  45       18%   24%     
 
 
  55       13%   15%      
 
 
Be Prepared
In order for a small company to survive an owner’s or key person’s disability, a disability income insurance program should be considered to:

• Protect the company from turmoil which may occur when an owner or key person is no longer able to work.
• Minimize any ill will that may occur if the company cannot compensate a disabled employee or must discontinue paying that person.

What Type of Coverage
There are two basic types of disability insurance coverage — a group or an individual disability income policy or some combination.
 
Group Disability Insurance
A basic policy can provide the owner and employees with replacement of earned income loss due to disability. Most group policies have a cap on the benefit amount. Also, many cover only the base salary, not pension and profit sharing contributions, deferred compensation, commission income and incentive bonuses. Coverage under a group insurance policy generally ends when the employee leaves the company, but individual disability income insurance policies can supplement it.
 
 
 Individual Policies
An individual disability income insurance policy can provide additional income to cover financial obligations and living expenses. For the business owner, a group or individual disability income policy can also serve as a valuable employee recruitment and retention tool. In a competitive job market, a company that includes disability protection as part of its benefits package may help sway a candidate weighing two similar offers.

By protecting against unexpected events through disability income protection, a small-business owner can keep employees satisfied and secure while laying the foundation for the company’s continued development.
 
 
 *MarketWatch: “Illness And Injury As Contributors to Bankruptcy”, Harvard Law School and Harvard Medical School, February 2, 2005

**What are the Odds Calculator, www.nmfn.com | Learning Center | Calculator
 

Many women today are not just climbing up the corporate ladder, they’re designing and constructing the ladder itself. According to a recent story in Newsweek magazine, women-owned businesses today are growing at twice the rate of men’s. The entrepreneurial spirit clearly has a feminine side.

A 1999 report prepared by the National Foundation for Women Business Owners (NFWBO) counted 9.1 million women-owned businesses—a growth of more than 42.2% since 1992. And those businesses are employing 27.5 million people—an increase of 108.2% since 1992. During that span, sales increased 132.2% to reach more than $3.6 billion, and extended to many “nontraditional” fields for women, such as construction and manufacturing. According to the U.S. Department of Education, nearly 55% of all bachelor’s degrees were awarded to women in 1994-95, versus just 35% in 1959-60.

“In the ’70s and ’80s, women gained acceptance in the work force. Now, they’re finding ways to take those skills and talents to create careers that better suit their financial and personal goals,” said Mark Gmach, Director of Career Recruitment for Northwestern Mutual.

Women’s reasons for striking out on their own are as diverse as their businesses. Some women find they’re unable to break through the “glass ceiling” of the corporate world and see business ownership as a clear path to the top. Others cite lifestyle changes, increased financial gain and better job security as primary goals. Oftentimes, a combination of factors serves as the impetus behind a new business.

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