As a business owner, you’re on your own path. Whether you manage multiple employees or just work for yourself, you’ve created your life and built your financial world amid risks and responsibilities that are different from the experience of many people. So, it makes sense that planning for your retirement would be different, too.
While most people look to earnings, savings, investments and pensions to guide their planning for retirement income, many business owners preserve much of their wealth within their business and count on the value of that business to provide an income that will propel them through retirement.
Or maybe you are decades away from retirement and all of your energy is going into growing and managing your business. Well — that’s precisely why there has never been a better time to begin thinking about your retirement income needs. Right now, time is on your side.
The Challenge: Converting Wealth into Income
Planning for the time when you may need to convert all or a portion of the wealth in your business into a sustainable retirement income stream can be daunting. For one thing, market and economic variables can affect the value of your business at any point in time. Even in optimal circumstances, it may be difficult to put an accurate price on your business or determine its salability.
In addition, it’s easy to overestimate the value of your business and underestimate what your expenses will be in retirement. With so much that is unpredictable, it’s important to establish diverse sources of retirement income. Relying solely or too heavily on your business for income is putting your retirement nest egg into one basket.
Predictable Retirement Income – the New “Exciting”
Variety may be the spice of life, but predictability is the bedrock of sustainable retirement income. Predictable income isn’t affected by market performance, economic volatility or customer demand. It’s the money you will need to pay for the expenses (think housing, utilities, healthcare, etc.) that will continue long after you retire or cut back on the time you spend working. Examples of this kind of predictable income include Social Security and pension benefits. As a business owner, you may not have a pension plan but there are ways you can add a pension-like predictability to your retirement income planning.
Take Charge of Your Future – with a Flexible Premium Deferred Income Annuity
The name may be a mouthful, but this type of annuity is specifically engineered to provide future income that is guaranteed to last for as long as you live or, in some cases, for a period of time you choose. It’s called a “deferred” income annuity because it includes a minimum waiting period before income payments begin.
The “flexible premium” part means that in addition to the required minimum initial “purchase payment”, you can make subsequent purchase payments as often as you wish, within contract limits. For example, a contract might require a minimum initial purchase payment of $10,000, and permit additional subsequent purchase payments with a much lower minimum — say, of $500 each. The flexible premium feature can be a good match for business owners who want to put more money into their contract (to purchase future income) when business performance is robust, and less money in — or none at all — when business is in a down cycle.
With a flexible premium deferred income annuity you are essentially using today’s dollars to purchase the income you will need in the future. And whenever you make a purchase payment, you will know the exact amount of future, guaranteed income that you have secured. What’s more, the income amount that you purchase with today’s dollars generally will be higher than the payout you would receive if you decided instead to purchase a traditional deferred annuity at a later date and begin taking an annuity payout then.
When it comes to an annuity, it’s important to understand the fundamentals. A deferred income annuity differs from a traditional deferred annuity in important ways. In general, a deferred income annuity:
- Does not provide liquidity; there is no contract value or ability to make cash withdrawals as there is with a traditional deferred annuity. Typically, the only time that distributions are made from a deferred income annuity contract is when annuity payments are made or a death benefit is paid.
- Because there is no contract value or liquidity, and your guaranteed income is paid to you over your lifetime, a deferred income annuity generally can guarantee a higher future income amount than a traditional deferred annuity.
If you are considering a deferred income annuity, it’s essential to have a separate source of liquid assets set aside for emergencies. As with any financial product, it’s important to get all the facts from a trusted Financial Professional.
Simplify Your Retirement Income Planning
You’ve been the trailblazer that’s made your business a success. Now it’s time to apply that same pioneering attitude to your retirement income planning. Your Financial Professional can help you refine your retirement income roadmap. A solid retirement income plan can go a long way to helping you preserve your capital, grow your assets and create a retirement income stream that’s guaranteed for a period of time you choose or for the rest of your life.
Insurance products issued by Massachusetts Mutual Life Insurance Company (MassMutual) (Springfield, MA 01111-0001) and its subsidiaries, C.M. Life Insurance Company and MML Bay State Life Insurance Company (Enfield, CT 06082).