Posted by: Today's Tip Contributor on August 19, 2011
Many business owners rely on the success of their business as their sole source of income and retirement savings. Normally, financial advisers recommend diversifying portfolios among stocks and bonds. The combination typically works fine, if managed appropriately and other factors, such as income, are stable. But that’s easier said than done, and business owners face different risks than salaried workers.
Business owners should explore additional options to secure their retirement savings, such as fixed indexed annuities. Added to a business owner’s portfolio, these can help protect personal income and cash flow. Small businesses benefit from fixed indexed annuities for three reasons:
1. It’s Safe Money
Unlike other risk assets, fixed annuities are guaranteed not to lose money. Some fixed annuities increase in value each year, based in part on how the stock market performs, but still have a guaranteed minimum return, which is not a bad strategy given today’s uncertain and volatile markets. And with all the uncertainty business owners face, it’s nice to know that some of their money can be placed in a safe harbor from the current economic storm.
2. It’s Guaranteed Income
Business owners don’t have the benefit of pensions from an employer. Annuities can be structured to provide a guaranteed income for a business owner and spouse they will not outlive. Even after the owners sell or close the business, the checks will keep coming to their mailbox as long as they are around to pick them up.
3. Tax Benefits
Annuities let business owners defer tax on income that is not currently being used. The deferred income doesn’t show up on their tax forms until they begin to use it. That can provide some beneficial cash-flow planning that every business owner needs.
Certified financial planner and president
Wisdom & Wealth Solutions