BENEFITS. Traditional Corporate Benefit Plans are non-existent for the self-employed.
Entrepreneurs designing their income and lifestyle have one huge blind spot. 14.4 million of USA entrepreneurs know we have this blind spot going in and ventured in any way. This blind spot scares others and is why many who dream of time/money/freedom won’t venture into entrepreneurship. That blind spot is the 401K and health benefits offered in corporate jobs that are absent when you decide to work for yourself. As far as I am concerned, this corporate perk is what I call the ‘golden handcuff’.
Mandatory v. Voluntary
What makes this issue more of a problem is, until there is a legal change – all Americans have to show they have health insurance or be penalized for failing to do so. Health insurance is an expensive bill for a start-up or ‘baby’ company when income is slim to none. Retirement planning which is voluntary becomes an even more remote consideration. Without addressing health and retirement, self-employment will eventually feel less sustaining as time goes by.
Tick tock tick tock. Like it or not, if you have the privilege of another day it means you are getting older. Even if you maintain a healthy lifestyle, aging brings it’s own challenges to energy and abilities. We slow down, we do less, we rest more. For the self-employed, not working often means income is impacted. Even if you have grown your business to have employees that can run your operation, even if you do not offer your employees the corporate package, addressing health and retirement for yourself are still important.
Setting Up Your Corporate Benefits Plan
Ok, I should have subtitled this; Setting up your, “Ah! It’s going to be alright!” plan. Isn’t that the real value of a benefits plan? That financial peace during a personal life storm?
On the health side, while purchasing health insurance may be somewhat mandatory, the amount you need to pay can be reduced with an HSA (health saving account).
There are many resources but CLICK HERE for one online option for the entrepreneur to consider to establish their own HSA.
On the retirement side, the options can become overwhelming and some are even risky. This is not one I recommend you try doing DIY. Few of us can afford to lose hard-earned income no matter how aggressive our investment style.
I recommend you consult with a Financial Planner, however, here are some things you may want to research in the meantime, or include as questions during your consultation.
Savings – Forget it! Except if you are saving to gather what you need to enter into an investment vehicle. Today, banking fees often exceed interests offered on savings accounts.
IRAs. There are many types. On the surface, an IRA seems great. However, there are deposit limitations and whether pre-tax or post-tax, you will pay withdrawal taxes. I anticipate taxes will increase over time so Uncle Sam will say “Thank You” for a nice chunk of any growth you enjoy. Also, IRA funds are subject to the market and the recession of 2006-2010 is still fresh in many minds.
Mutual Funds /stock market. Enter with caution and choose your Broker wisely. Most Brokers earn their fee whether they manage your funds to a profitable outcome or not.
Smart UL. This single-vehicle offers the entrepreneur a permanent life insurance policy and a growth vehicle all in a single product. The types of universal life policies vary, but in all cases, whether the investment arm is guaranteed growth (conservative) or flexible growth (aggressive), the insurance face-value is never compromised. The Smart UL is of course, one of my favorites, and one I love to share with fellow entrepreneurs.
The perk of the product is, the payout is also tax-free. Payouts, while you are living, can take the form of dividends (return of premium) or upon your death to your heirs.
Many insurance Agents fail to explain this product clearly and as a result, some buyers feel ‘soccer punched’ because they did not understand the beauty and possible misunderstandings of this product.
The biggest problem with this is that the universal life insurance is a hybrid between a Term and Whole-life policy and it is a ‘permanent’ policy – well, sort of. It is permanent, PROVIDING the premium paid is the target premium and not the minimum.
Too many agents focusing on their commission pass off this permanent policy with the minimum premium to get the sale, and the buyer finds their policy lapses 10 years post-purchase. The minimum payment activates a 10-year term feature, the target premium activates the permanent feature and the cash growth aspect of this product.
I love this product because a strategic entrepreneur can use this tax haven to not only secure much-needed life insurance security for their family but also have their cash value grow tax-free.
*Minimum premium in this example is actually $61/month. Paying only the minimum converts this product to a 10-year Term policy.
If you have a business partner, consider taking out policies with each other as the beneficiary. This may be the vital piece that allows for continuity of the business and mitigates the immediate loss to your operation when the contribution of one partner disappears due to death.
Work to Live NOT Live to Work
Most entrepreneurs desire a quality of life that jobs, no matter how great fail to offer. Unless we are careful, entrepreneurs can dive so deep into their passion that overwhelm and overwork are the end result. The whole point of creating your benefits package is to look ahead to your ‘down’ days.
We all get sick and if we live long enough, we get old. If you do not have a strategy for your ‘what if’ moments, please connect with me for a free Discovery Session. Neither of us knows the other, so this session allows me to see if I can even help you. I guarantee you the gift of feeling heard and resources you can access even if working together is not an option.