Insurance issues

By now, you know that this is not legal advice and I don't want you to rely only on this article when you make decisions, so be prudent and get local specific help as well.

Retirement! The Golden Years, the end of the rainbow, the Promised Land. Man, that must sound great about 10:45 on a Friday night when you are one driver short, your feet are screaming at you, and you still have to proof the till, set up for tomorrow and try to get some sleep so you can do it all again the next day.

Well, unless you do something about it now, it's never going to happen. The tragedy is that there are just too many white-haired pizzaiolos out there who just plain forgot to plan for retirement. These guys are stuck behind the counter making pizza well beyond the point they ever planned to be doing it. It's not like they wanted to end up there. They did it by default. Unless you make choices, your life will go to the "Default Option." That usually isn't good for you and your family.

How to Apply the Risk Management Approach to Retirement

Risk management is the process of analyzing exposure to risk and determining how to best handle such exposure. So, let's apply the classic risk management formula here:

Identify the risk.

  • Dying too soon – If you die young, you are not going to retire. You will leave the people who depend on you to carry on. That's your wife and children at minimum.
  • Living too long – No foolin'. Living too long can be just as bad as dying too soon. We all think we'd like to live to at least 100 years old but most of us never think it through. Where's the money going to come from to live that long?
  • Changes in society – The federal government has been sending out signals for the last 10 years telling us that Social Security is not going to be what it was for the last generation.

There are other things for sure, but space and time is limited, so we will only deal with these three "biggies" here.

Eliminate the risk.

Well, that's not applicable here. If you are alive, you will die. If you are not dead, you will grow old. Until the nature of the universe changes, we are not going to eliminate those two.

Changes in society – back to the nature of the universe – everything changes. The key is to change with the change and be pro-active.
Reduce the risk. Retain the risk. Transfer the risk.

That's what we are going to have to do. Up till now, most people thought about a "three-legged stool" for retirement that included:

  • Social Security
  • Pension (of some sort)
  • Personal Savings

I'll go on the record as saying that I do not think that Social Security will disappear. It's just too big a political land mine, but it does not take Nostradamus to predict that it will definitely change. It has already and will change more.

Personal savings are at an all time low in the United States and, face it, there's no real incentive to save. Rates are low and you get taxed on the little you make on your savings, so why do it? Most people are not.

Pensions are traditionally the province of larger companies. But now, thanks to legislation, pizzeria owners as small business owners can take advantage of some pension-like vehicles that have some real muscle.

Dying Too Soon

Let's deal with the easy one first-dying too soon. Why is this a retirement issue?

  • If you die too young, you won't be around to fully fund your Social Security, which means that your husband or wife will be disadvantaged in whatever Social Security morphs into.
  • If you haven't completed SOME sort of funding plan your husband or wife and children will be left to fend for themselves. No mortgage payments, no car payments, no debt repayment… nothing.
  • No money for future family needs like college, medical emergencies, childcare, etc.

So, what do we do about this one? Simple: Buy iceberg-size chunks of life insurance – now. The good part is that once you outlive your youth you can start to divest yourself of this. (Note: There are about as many types of life insurance as you have fingers and toes – you need to take a good look at what fits your need).

Living Too Long

Now, for the tougher one – living too long. No kidding, if you live too long you need more money. More than you have now. More than you imagine you will have. So, what can you do about it? Start now!

Current laws allow you to take advantage of at least two tax-advantaged plans. The first is a traditional IRA (Individual Retirement Account). You can put up to $4,000 into an account and get a tax deduction on this one. You can also put up to $4,000 into a "ROTH" IRA in addition to the Traditional IRA. The "ROTH" money is NOT tax deductible going in, but once the money gets into the account (either one or both) it grows without tax. That's right � no tax on the growth. No tax until you take it out. Good deal? You bet it is. Anytime the federal government lets you take a deduction on money going in and/or lets that money grow tax free you are a big winner. Listen, this is a government subsidy of your retirement. Grab on to this with both hands, and maximize the deductions.

There are enough rules to make Einstein go crazy. CAUTION: There are rules and you MUST follow the rules. If you foul this up, it will cost you big time in taxes and penalties. There are things like catch-up amounts you can take advantage of if you are 50-plus, and there are rules when you can take the money out and how you get taxed. Your CPA can be your best friend in this area. Talk to your CPA often. You pay for good advice, use it!

Listen. There are other options available. You may be able to get in on a 401K plan as well. A 401K is another type of retirement savings plan that allows you to put money away and gets what I consider to be a government subsidy to do it. The rules are more complicated, and you have to include employees in it, but it is certainly worth looking at.

I've purposely stayed away from pension plans because of the regulations and participation requirements imposed on you. Many small pizzeria owners won't be playing in this area and, if you simple get in on the IRA deals out there you still have a major score.

Your Secret Weapon

What about the secret weapon you already have in your hands. Ready? Wait. I have to tell you this first so you'll understand where I'm going on this. I was just at a meeting of a group of really savvy guys that I spend my hard-earned money to listen to. One of these guys was telling me about a revelation he recently had, and it went something like this… "I finally realized that I have two jobs. One is the job I get paid to do in my business – the one I'd have to hire somebody to do if I wasn't doing it. The other is to take care to polish my business like it was a fine little jewel!"

He was saying that the business itself is a major asset and one you can nourish and polish like a fine little jewel so that when the time comes to retire you take this fine little jewel to the marketplace and demand (and get) the highest possible price for it. And the buyer will be glad to pay the price. Why? Because it's the highest possible quality there is, and it is, simply, worth the price!

Look, we both know of some guys who literally ran the business into the ground and couldn't give it away when the time came. The classified ads are full of them. Do you think these guys are going to have a comfortable retirement? I wouldn't bet on it.

RADICAL CONCEPT! Nourish and polish your business day by day until its value is so high that you can almost name your own price for it. What would that do for your retirement? Think it would add big bucks to your nest egg? Think it would give you peace of mind? (*At the end of this article there's an offer for some help on this.)


So, to sum up, you need to do a few things:

  • Identify your risks – dying and living too long.
  • Transfer and reduce your risks. Buy iceberg-sized chunks of life insurance for the short-term risk, and get involved with tax-deductible and tax-deferred programs for the long-term risks.
  • Get your CPA in on this. The IRS has no sense of humor. Cross them, and they will make you pay.
  • Change your thinking. Make sure you look at your business for what it is-a real asset. Something you can nourish and polish for your last big payday � the day you sell it.
  • Oh yeah, I forgot one thing. Start thinking about what you want to do when you retire. It will be in your face much sooner than you think.

My standing offer: If you have any questions, call me at 201-945-3100. I'll do my best to help you out, and I'll put you in touch with the representative in your state.