Episode #82: An Underutilized Retirement Strategy for Business Owners

Episode #82: An Underutilized Retirement Strategy for Business Owners

Entrepreneurs face a number of obstacles throughout their careers, but particularly when they approach retirement. Having sustainable income once they leave the workforce does not have to be one of those difficulties. In this episode of Money Script Monday, Luke explains an approach to generating tax-free retirement income without the risk of market volatility.


Click on the whiteboard image above to open a high-resolution version of it!

Video transcription

Hello, my name is Luke Geller, and you're watching another episode of Money Script Monday.

Today, we're going to be talking about an underutilized retirement strategy for business owners.

The reason I really wanted to talk about business owners and retirement for business owners is a couple things.

I've been seeing a lot of recent industry articles on different websites, Forbes, things like that that are talking about how business owners aren't that prepared for retirement.

Then, on top of that as well is it's actually pretty near and dear to my heart because I come from a family of entrepreneurs.

My grandpa worked and owned his own Mercedes-Benz repair shop since before I was even alive.

My uncle grew up in that repair shop and worked his way up and then eventually created his own business as well, doing the same thing as a Mercedes-Benz repair shop. He's had a couple of those basically my entire life.

On top of that, my dad owns his own company, a local freight service that he owns and that he's owned for over 20 years now.

I've grown up and seeing that entrepreneur mentality, that business owner mentality of putting your heart and your soul into your business.

And especially when it's successful, you have to work so hard to get there.

Those business owners and that mindset is amazing, except it's not amazing for when it comes about thinking about themselves and thinking about their retirement and their future.

They put so much energy into building up their business, they don't think about plans for that next step and when they want to eventually retire.

When business owners do think about it, what they're really thinking about is they just plan on selling their business and retiring that way.

That's not always the most feasible plan and the most realistic plan. So, I want to talk about a couple different statistics of what business owners, or kind of the trend is right now.

I want to talk about some of the three different dangers of that plan of that common approach that "I'm just going to sell my business as my retirement plan."

Then, I want to take a look at a hybrid plan that's going to fit all these needs that the business owner might have and might encounter.


One of the statistics that I found that was actually pretty alarming is that only one in three business owners, the ages 45 to 60, have over $100,000 in a retirement account.

What that tells me is that two-thirds of business owners don't have any retirement account.

They're following that model that "I'm either just going to sell my business. I'm going to kind of taper down and let one of my beneficiaries take over, one of my son or daughter take over, while I still earn a paycheck in a limited capacity, sell off my shares."

Whatever it may be they don't really have a full plan. And that's dangerous, because there's a lot of things that can happen.

There's a lot of things that can go wrong. And that's really just putting all your eggs in that one basket.

It's not something that's smart to do in really any capacity, especially something that you spent so much time building up and really working on, such as your livelihood, your business.

Like I said, I've seen it. My dad growing up spent hours working, driving everywhere, getting everything done, doing what he needed to do to provide.

The last thing that I want for him or want for anyone that's done that and put in that time is to see it go all up in smoke because something happens that they didn't account for.

3 Dangers to a Common Approach

We're going to go over a couple different dangers that they might see, and that they need to account for and that you really want to think about.


The three things that business owners need to think about is one, is their own retirement, and two, they need to think about a succession plan for their business, and three, how to retain those key employees.

When we're talking about their succession plan, most succession plans are they're either going to sell it, or they want to take a reduced role where they're still earning a paycheck, or they're going to want to just work longer if they can't sell their business.

Those are some of the dangers that might happen.

If, God forbid, something happens to their health, they have to sell that business earlier than they thought or for a lot less than they thought, and that could be dangerous.

In order to do some of those things, you also need to make sure that your business is profitable, and you have the right people at your business too.

You need to be able to retain those key employees in order to do that as well. And that's not always easy to do, and something that isn't always just written in stone of how to do that.

A Hybrid Plan to Fit Your Needs

We're going to go over how this specific plan can do that, and we're going to talk about that hybrid plan that can fit those needs.


When we go down that list of needs, that first one is your own retirement.

In your own retirement plan, you want something that you can build up cash value, that has some tax advantages, and that you don't have to worry about that volatility in the market.

What I'm talking about in that hybrid plan is actually called the indexed universal life, is what I'm going to use in this presentation here.

There's a lot of different things you can do. You can do SEP IRAs, you can do 401(k)s, you can do defined benefit plans, but one thing that's a hybrid plan that can really fit a lot of those different needs that I talk about.

I'm going to bring up a little bit later as well, is that indexed universal life.

So, one of those needs is building up your retirement. And what an IUL policy allows you to do is participate in those market gains while staying away from those market losses.

If there's a drop in the market, there's a floor of zero on your indexed universal life policy, where, say the S&P drops down to 20%, you have a zero and you didn't lose any money in that account.

Now, one thing you do want to make sure is that you're working with the right person and that that person has max funded and properly structured that indexed universal life policy for maximum cash value.

Another thing that you need to worry about that I mention in succession planning is, say your succession plan is to pass off to your beneficiaries or sell that business.

Well, you need to make sure that you're healthy enough and that it's the right time to do so. And if, God forbid, something were to happen to you, then all that could go down the drain.

Another feature that an IUL has is what's called living benefits, or accelerated death benefit riders, where if you somehow become incapacitated, can't walk, if you have a heart attack, you get diagnosed with cancer.

You can actually accelerate a portion of that death benefit to help pay for whatever you need, whether it's to help keep the business going, whether it's to help with medical bills.

It's very flexible and can fit a lot of those needs to make sure that... Again, it's just something that you have in your back pocket that can be helpful for you and your future.

Now, another thing is retaining those key employees, which is huge, because if you want to sell that business, if you want to stay on at that business at a reduced capacity, it needs to keep going.

I think it's something like after the third generation of family members take over that business that a business usually doesn't survive.

You want to make sure that you're keeping those key employees, to make that business run smoothly. And how can you do that?

Well, the great thing is, again, this is a hybrid policy that can fit multiple different needs.

You can actually use this, and I've seen this at companies that I've worked at and working at now, that have key policies and executive bonus policies for those high executives.

Where the company is the owner of the policy and pays the premiums, and then after X amount of years, 5, 10, 15 years that this key employee is working for the company, that policy and all that cash value that's built up in that policy becomes theirs.

That's a way to help keep those key employees, and something a little bit unique than just a 401(k) plan or an IRA.

One other thing about it that also helps with that building up your own retirement, is that you don't have those contribution limits that you have in a 401(k) or an IRA, where you're limited to about 18,000 or you're limited to about 5,500.

You have some added benefit in an IUL where you can add even more into that.

And if you're, again, running a successful business, have a profitable business, you might want to put more into that, especially, again, when we look at some of those statistics.

If you're 45 or 50 and have less than $100,000 in a retirement account, you might need to jump start that retirement. And this is a great way to do so.

You want to be able to protect yourself. You want to be able to protect your business, and you want to be able to protect not just your business and yourself, but also your future and your family.

And the way you can do that is by setting yourself up now for a prosperous retirement.

I want to say thank you for attending today's webinar, Money Script Monday, and have a wonderful day.

About Luke Geller

Luke Geller is a Field Support Representative at LifePro. He coaches hundreds of financial professionals on how to build effective financial strategies that achieve their clients' long term goals and helps them stay educated on the latest industry trends.


This information is meant for educational purposes only.

Related Blog Posts

MSM Opt-in Popup