Drowning in a Sea of Prosperity
Jake poured over his financial statements, looking for any glimmer of hope that might spell a reprieve in his daily, weekly, monthly grind. Every year told the same story… “This year I’ll be able to set more aside for myself. I’ll get that line of credit paid for and finally put money in my retirement savings account.”
However, the setbacks never seemed to stop. Sometimes it is an equipment breakdown, or a lost customer or another rise in the cost of providing health insurance. Sometimes it was a personal expense like helping his daughter who didn’t have health insurance when she broke her leg or helping to fund grandkids whose parents don’t have enough money to pay for college. Whatever the reason, Jake has never been able to put much money away. He had hoped that his wife, Carla, would be able to work until she is 70, to maximize what she can draw on her social security, but at 62, she is suffering from diabetes and a range of other issues, so a long working life doesn’t seem possible. As Jake looks out to the future, it feels bleak. He’ll be working for a very, very long time.
Jake isn’t alone. A recent article in The New York Times cites the rising number of seniors who are declaring bankruptcy. And there is an alarming trend that finds more seniors personally guaranteeing college loans so that their children can retrain for a fast-changing workforce or grandkids can gain a tertiary degree. All of this is happening while the media touts an ever-lower unemployment rate and a strong, growing economy. Where is the disconnect? And, how can we help our small business owners to find a different path to a rewarding and stable retirement?
First, many of our small business owners are still recovering from the economic meltdown of 2009–2010. The past eight years have been a slow climb, and some business owners borrowed heavily from their own savings to help their businesses survive. This can take years to re-build. In addition, while money is readily available in the form of quick loans and confusing investment schemes, the interest rates are often high and the market remains volatile as consolidation across industries continues to occur and big players continue to dominate and expand their reach. Add to this the rising cost of finding and keeping employees and the costs associated with healthcare, and many small businesses are simply stretched too far.
As business advisors, we may need to expand our own areas of expertise and financial understanding (or partner with the experts) to ensure we are bringing a wider array of services, information and support to our clients. In my own practice, I’ve been focusing on the following:
- As early as possible in the discovery process, probing the sensitive issue of life savings and risk management. This is a tricky subject and one that I have not always been comfortable raising. However, today, I start by citing how difficult it can be to save for the future in this current environment and see if I can crack open the conversation.
- Working with owners, as early as possible, to lay out a plan for both investing in the future of the company AND investing in their personal future. Many business owners are worried about drawing too much out of the company, particularly in the early years. This is why it is so important to work with a financial planner to understand how to begin saving early, in a way that can maximize returns.
- Teaching up-and-coming generations about personal money management. While this has never been my personal forte, I have learned a lot by bringing subject matter experts into the conversation and turning an historically dry topic into one that is energizing and inspiring.
- Helping our older business owners to begin generating a whole new range of personal options. For example, they may not have enough money to retire today, but it might be possible to sell some assets, or a portion of the company and invest this money wisely. It might be possible to design a management buy-out, structured over-time, to provide the owner with some liquidity and funds for investing. There may be ways to set up a trust or use current insurance vehicles, such as annuities, to provide some retirement stability.
It is important not to skip over this important aspect of transition planning. While many owners may be loath to talk about it, the fears are real and even the most wealthy or secure owners may, in fact, have little liquidity, and a great deal of debt. No one wants to be a burden on their families or on society and this secret fear and sense of shame can lead to owners keeping quiet and feeling lonely, isolated and desperate.
Let’s not let the celebrations of economic success cloud the fact that many among us need real help to enjoy both the impact of the economy and the fruits of their own labor.