Baby Boomers and Their Businesses

In one of our latest blog posts, we discussed the impact that the Baby Boomer Generation has and will continue to have on our economy. This is especially true when it comes to their retirement. A study from Lindquist shows that since 2011, 10,000 Baby Boomers are turning 65 every day. This trend is set to continue for 12 years.

Baby Boomers own 65% of all privately held companies, and although many of them are delaying retirement for financial reasons, the overall increase in their rate of retirement will lead to a related increase in the sale of small businesses.

If you’re a Baby Boomer with a privately-held company, it’s imperative that you create a sound exit strategy for your retirement, particularly if you plan to sell. Here’s what you need to know.

The Businesses

There are approximately 4,000,000 businesses owned and operated by Baby Boomers. Nearly all of them are identified as small businesses (fewer than 500 employees) and are sole proprietorships or small corporations. These businesses are considered to be in the lower middle market with annual revenue anywhere from one million to one hundred million dollars.

Baby Boomers’ Business Sales

While some Baby Boomer-owned businesses will close their doors when their owners retire, an estimated 65-75 percent of them will be put up for sale over the next ten years. Research indicates that during the next 15 years, there will be the largest intergenerational transfer of private businesses in our country’s history. Some researchers have predicted that more than $10 trillion in business assets could be transferred before the year 2030. If business sales were consistently spread over the next 15-year period, that would result in almost 267,000 businesses being transferred every year.

How to Sell

If you’re likely to be retiring within the next 12 years, selling your business is a viable option to preserve its legacy and help you to turn your equity into liquidity prior to your retirement. If you choose to sell, one of the first steps you should undertake is to understand what your business is worth.  You should know the best-case scenario, worst-case scenario and the path you need to pursue to get there.

 

For further reading, we encourage you to read our related blog posts:

Getting Ready to Sell Your Business

Now that You’re Ready – The Steps to Sell Your Business

Our team at Symmetrical Investments can help you as you prepare for the next phase of life. Contact us today to get started.

 

 

“Baby Boomers,” those born between 1946 and 1964, have played a significant role in shaping the economy. So much so, in fact, that economists from Wells Fargo recently released a report analyzing the impact that the retirement of this generation will have on the economy in the near-future and beyond. Ultimately, the effects will be far-reaching, impacting younger generations (who may have to support their parents), retirement policies (i.e. Social Security and Medicare), and the housing market. Below, we highlight some of the key takeaways from the report.

More Debt Than Previous Generations

 Although Baby Boomers have less debt than younger generations, the typical Boomer has more debt at this point in life than previous generations. As of 2013, 66 percent of those aged 65-74 had some sort of debt, as seen below. Moreover, the typical value of real dollars has increased, pushing their debt holdings even higher.

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Delayed Retirement

To improve their retirement finances, more Boomers are delaying retirement. In a 2016 Wells Fargo survey, half of the workers reported that they would need to work until age 70 to comfortably retire. In fact, employment among workers above 65 has steadily increased since the mid-1980s. Although there is this present need to work past 65, only 31 percent of Baby Boomers at or above 65 years old are currently employed, as compared to the 50 percent who indicated it was necessary to stay employed until they were 70.

A contributing factor for the delayed age of retirement is that some are still trying to regain lost finances from the recession. Labor force participation for this generation has fallen since the recession and has not been able to turn back around, meaning that retirement before 70 isn’t always a viable option.

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Typically, those who choose to work after the age of 65 are those with higher earnings and degrees, as opposed to those who have to work in order to make ends meet. This distinction in earnings and ability to work longer further drives a wedge between those who are sufficiently prepared for retirement and those who aren’t.

Decreased Spending

Most Boomers are now at an age where their household spending generally begins to decline. More than 75 percent of Baby Boomers are over 55 years old, which is the approximate age in which household spending begins to decrease.  With the majority of Boomers now entering retirement, consumer spending will be significantly impacted. Spending could be decreased even further as Boomers decide to save more for their retirement in years to come. While many businesses will need to prepare for this spending slowdown, the impact will vary by industry. Businesses in apparel, dining, and transportation will most likely see the largest drop-off, while the healthcare industry will generally rise.

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The entire economy should brace for the impact of the retirement of Boomers. We suggest that both Boomers and younger generations evaluate their finances and prepare for their future. If you’re nearing the age of retirement and would like our advice on selling your business or other ways to prepare for retirement, contact the Symmetrical team for help.

You don’t need someone to tell you the critical role that financial planning plays in your future. Evaluating various retirement options and making investments now, no matter your age, will allow you the opportunity to build your wealth over the years to come.

It is key to speak with your friends, partners, and advisors to familiarize yourself with all of the options available to you, including those that are less common but may be a good fit for your personal situation.

There are a number of retirement options that you’re probably familiar with, including both employer-sponsored retirement plans and individual retirement plans – traditional, Roth, and SEP IRAs and 401(k)s, for example. For those looking to increase the diversity of their portfolio and take control of their investment decisions, there is the lesser-known option within the individual retirement account (IRA) referred to as a self-directed IRA. Companies like CamaPlan and BeneTrends are great examples of self-directed IRA administrators within the industry.

While IRAs typically consist of stocks, bonds, mutual funds, and CDs, self-directed IRAs give you the ability to create wealth outside of traditional investment methods, by making investments in real estate, mortgage notes, private placements, tax lien certificates, hedge funds, and much more.

Private placements, for example, are very popular with self-directed investors. Unlike loans, a private placement is an equity investment in a business opportunity whose shares are not offered to the public or through an open market. While these investments tend to be riskier, they can facilitate lasting wealth.

Despite its lack of popularity in the past, self-directed IRAs are not a new concept. Investing in alternatives to stocks, bonds, and mutual funds has always been allowed by the IRS; however, many advisory firms focus strictly on traditional investment options, which tend to be the easiest to manage.

If you’re interested in pursuing a more diverse portfolio, self-directed IRAs may be an option for you. They do have their own set of rules and regulations that must be followed, so please consider all of these by speaking to your professional advisor and visiting the IRS website.

We invite you to continue the self-directed IRA conversation over on our Facebook page.

P.S. If you want an interesting reading assignment, Google “Mitt Romney, $100M Roth IRA”.

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