Colorado small businesses are less likely to change health insurers for the upcoming year, even as they anticipate continued price increases, according to the second-annual Delta Dental of Colorado Small Business Survey.
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Small-business owners often find themselves overwhelmed with day-to-day operations of their business, performing tasks such as marketing, client meetings, product development, managing employees, paperwork and benefit decisions. Corporate executives are busy managing their teams, meeting revenue targets, cultivating new business acquisitions and sometimes — endless travel, among other things.
With all these tasks at hand, protecting earning power and making sure your estate plan is in order are two of the most important wealth-management topics that should be addressed but often are overlooked.
The thought of estate planning is a daunting task to most people – but particularly for those whose days’ are consumed with so many other important tasks and decisions. There are many steps that become overwhelming during the process of estate planning and creating your will.
First, you have to find a qualified attorney. And the hard work doesn’t end there — next you have to fill out a long multipage questionnaire. This is often where the momentum ends because the last thing a busy corporate executive or small-business owner wants to do is fill out more forms.
If you use the services of a wealth manager who is already familiar with your assets and total picture, they can be of great assistance when completing the initial questionnaire for the attorney.
After answering questions about your financial and personal situation, you then have to make some tough decisions. You have to determine an executor for your estate, a guardian for your children, trusts for your children and where and how assets should ultimately be divided up. You also have to make decisions about your health-care wishes. All of these decisions and appointments are not so straightforward.
Once you finally have your will and estate plan created, you then have the long process and checklist of things to do such as changing your beneficiaries, changing account titles, changing asset titles and possibly funding trusts. This list should be shared with your wealth manager so they can assist with as many things as possible. Changing your beneficiaries is commonly overlooked.
Protect your wealth and your family to avoid ever being in the situation of not having a will and estate plan. If you don’t have a will, the state effectively has a will for you. In other words, the state has a method for how your assets will be distributed and their method might not have been what you wanted or intended. Depending on your situation, your spouse may not get all of your assets, or your children might benefit in ways you had not desired.
Another issue that often goes unresolved is protecting your earning power. This is extremely important, especially if you are the sole income provider for your family. Unless you have accumulated enough assets to make work optional, you need to obtain life insurance.
If you are a single wage earner, you need enough insurance to replace your salary minus the assets you have already accumulated.
For example, if your salary is $200,000 and you are saving 25 percent of salary and you have accumulated $1 million in assets (this is very close to the correct saving rate for this level of income) your assets would provide approximately $40,000 per year, increased for inflation for the next 30 years.
Given your pre-retirement spending was $150,000 ($200,000 minus 25 percent savings), your portfolio would leave you needing to replace $110,000 of earning power.
To arrive at the amount of insurance that would provide $110,000 of income, divide $110,000 by .04 to get approximately $2.75 million of life insurance.
The amount of insurance needed could be further reduced by Social Security and the earning potential of a spouse. The amount of insurance you need decreases every year as you get closer to retirement. There are term policies that will allow you to reduce the amount of insurance you need each year and your annual cost of insurance.
If you are a busy corporate executive or small-business owner, you need to make time to protect your wealth and your family, and commit to making work optional by saving more.
Robert J. Pyle is president of Diversified Asset Management Inc. in Boulder. This column reflects the writer’s views and is not a recommendation to buy or sell any investment. It does not constitute investment or tax advice. Pyle can be contacted by calling 303-440-2906 or email firstname.lastname@example.org.