The Financial Stages of Life

Many people put off financial planning, especially during uncertain economic times, because they either don’t know where to begin, or they think they don’t have enough money to make it worthwhile. The truth is: there is never an ideal time or place to begin and there is no specific level of income or assets one needs to have to make planning for the future “worthwhile.” You can (and should!) begin planning for the future regardless of which life stage you are in and regardless of how much money you have.

To begin the planning process, you first need to identify your present and future financial goals. If you’re like most people, your goals will include protecting your family in the event you die prematurely or become disabled; managing your expenses while paying down debt; buying your first home or helping your children pay for college; saving for retirement; and distributing your assets to your heirs—privately, equitably, and tax-efficiently—following your death. Fortunately, there are steps you can take during each of your life stages that will help you build, and then maintain, your personal financial security. Let’s take a look at them:

The Foundation Years

If you’re in your foundation years, you are probably facing the most difficult times you will ever have financially. You may be newly married or just out of school; you may be taking on debt in order to acquire—and maintain—your family’s lifestyle; and you are probably starting a new job or career. While you may be earning enough money to live on, it could easily be taking all you have just to meet your monthly expenses (e.g. student loans, rent or mortgage payments, car loans, utilities and regular household costs). Steps you can begin taking now to plan for the future include managing your cash flow without going further into debt, establishing an emergency fund of three to six months income; and protecting your loved ones. To help accomplish these goals, you should consider buying a combination of term and permanent life insurance. Term insurance is an inexpensive way to obtain the amount of protection your family needs, while permanent allows you to begin building cash values that accumulate income tax-deferred. If your finances permit, this is also a good time to purchase disability insurance, as you will be in a better position to lock in a lower rate based on your age and health.

The Accumulation Years

Once you’ve covered the basics—protecting your family and income, establishing yourself in a job or career and perhaps buying your first home—it won’t be long before you’ll want to start setting aside a portion of your earnings in tax favored accumulation vehicles such as IRAs and employer-sponsored 401(k) plans—especially if your company offers employer “match” dollars. Contributions to these plans can be made on a tax-deductible basis and plan assets grow income tax-deferred. During these years, money you were formerly paying in rent may now be going towards your mortgage, the interest on which may be income tax-deductible to you. At the same time, you may also be building equity in your house. If you have children, you may want to think about setting money aside in a college savings program, and you may want to begin expanding your investment horizon. While investments such as stocks or bonds carry a greater amount of risk, they also come with the potential for greater reward. Your accumulation years are also a good time to review your life insurance protection to ensure it is still sufficient to meet your family’s growing needs. You may also want to consider adding special riders, which may be available at additional cost, to your policy that extend protection to family members.

The Preservation Years

Once you’ve reached the preservation years, you will probably have accomplished many of your early financial goals. What’s more, you may finally have the financial freedom to accomplish a few of the special things you may always have wanted to do such as purchase a vacation home, help your children or grandchildren get established financially, or perhaps even retire early. But your planning isn’t over yet. There are still steps you will want to take to help ensure that your future financial security won’t be compromised by a long-term illness or unnecessary taxes and penalties. Looking into your long term care and retirement distribution options, including how, when, and how much you should begin drawing from your savings, could save you a significant amount of money and make the difference between a comfortable or merely “safe” retirement.

The Golden Years

When you do finally retire, you will enter what many people refer to as their “golden years”. During your golden years you can finally begin enjoying the fruits of all your hard work and planning. In this stage your debts are probably paid off; your finances are probably in order; and you likely have some discretionary funds that allow you to travel or enjoy a few favorite activities. If you’ve planned carefully, your golden years can be a time for doing what you want, when you want. During this stage, you may not only want to plan how you will pass your assets on to your heirs, but also how you might benefit a favorite charity. To accomplish these goals, you will want to consult with a financial advisor about trusts, power or attorney, and charitable giving strategies. If your income exceeds your expenses, you may also want to consider using distributions from your retirement plans to pay premiums on a life insurance policy. By doing so, you can increase the value of what you leave to your heirs plus help make sure there are adequate funds available to pay taxes, final expenses, and other estate settlement costs.

Building personal financial security is not something you accomplish just once, nor is it something you begin once you’ve accumulated a specific amount of assets. It is something you start doing as soon as you can and keep doing throughout the various stages of your life. To that end, if you’re among the millions of working men and women who dream of one day being financially secure, I encourage you to take a few minutes—right now, right where you are—to consider your financial goals and the various life stages through which you’ll pass. Knowing which stage you are in—and the challenges and opportunities you will face during those stages—can help you make the right decisions.

Withdrawals from retirement accounts may be subject to income taxes and when taken prior to age 59 ½ may be subject to an additional 10 percent federal penalty tax. Life insurance policies are subject to eligibility requirements and restrictions and may not be right for everyone. One should always consult with a qualified professional regarding their individual circumstances.

Joseph Pilla is V.P. Advanced Strategies & Business Advisory Services for XXI 21st Century Financial 216-545-1781. Custom designed strategies for both individual & businesses through uses of; Business Valuations, Premium Financing, Business Succession/ Asset Protection/ Insurance/ Wealth Transfer/ Investment/ & Retirement Planning.

Content prepared by Penn Mutual.

©2018 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172

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  • Next up: Protecting and Preserving Your Business for the Future: The Importance of Business Succession Planning
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  • Protecting and Preserving Your Business for the Future: The Importance of Business Succession Planning

    Building a successful business takes commitment, dedication, and a lot of hard work. And like anything of value, it must be protected – but not only against current risks such as fire or theft, but also against less tangible hazards such as the loss of an owner or key employee. Let’s face it, at some point in the life cycle of every successful business, one or more of three things will happen: an owner or key employee will die, become disabled, or simply decide to retire. Unfortunately, many business owners don’t take the time to plan for how their business will be run—or liquidated—following such an event. But without this kind of planning—generally known as business succession planning—even successful companies face the threat of failure. 

    Planning for the sale or transfer of a business or business interest should begin as soon as possible - while the business is successful and while the owners are healthy. In many cases, the foundation of effective succession planning is a buy-sell agreement, which should address:

    • How the buy/sell agreement will be funded. Will the money come from the owners themselves, or will the business fund the arrangement?
    • What kind of event will trigger the sale—death, disability, retirement? Maybe all three?
    • Who will actually buy the business interest—the remaining owners, a key employee or the business itself?

    A properly structured—and funded—buy/sell agreement can help answer these questions.

    What is a buy/sell agreement?
    A buy/sell agreement spells out the process by which a business or business interest are transferred following a “trigger” event—usually the death, disability, or retirement of one of the owners.

    Most buy/sell agreements take one of two forms—either they are “entity plans,” where the business agrees to purchase an owner’s interest in the business, or they are “cross-purchase plans,” where the business interest is purchased by the other owners. But while there are advantages and disadvantages to each type of plan, in many cases, neither arrangement fully meets the owners’ expectations or objectives. Tax issues, administration headaches, funding inequities, multiple insurance policies—just to name a few—can take much of the luster out of both types of buy/sell agreements. That’s where a Partnership Administration Success Strategy (PASS) can help. Under a PASS Plan, the benefits of both entity and cross-purchase plans can be made available, but without the drawbacks associated with either method.

    How can a PASS plan assist in buy/sell planning?
    The business owners enter into a cross-purchase buy-sell agreement, and the owners form a general partnership with all owners as general partners.  Each partner acquires a life insurance policy on himself and transfers it to the partnership as a capital contribution – the partnership becomes the owner and beneficiary of the policies. Policy premiums can be paid by the business by paying additional salary or bonus to the insured. The insured, in turn, transfers the cash to the partnership as a capital contribution, or the business itself may become a partner in the partnership and pay premiums directly to the partnership as a capital contribution.  The general partnership structure allows the partners the flexibility to allocate items of income, profit, gain and loss between themselves in a manner that meets their business objectives. This allows the partners to equalize cost and fairly distribute life insurance proceeds.

    Following the death of a partner, the life insurance proceeds from the policy covering that partner would flow into the partnership and be allocated to the surviving partners.The partnership would use a portion of the proceeds to purchase the deceased partner’s interest in the partnership. The balance of the proceeds would be distributed to the remaining partners. The remaining partners would then use those proceeds to purchase the deceased partner’s interest in the primary business.

    Using a general partnership to manage a buy/sell agreement can also be advantageous following the retirement or disability of an owner. In such a case, the partnership can distribute the disabled or retired owner’s life insurance policy to him or her in exchange for his or her interest in the partnership. The departing owner would assume ownership of his or her own policy income tax-fee. Over-funding of the life insurance policy(s)—a common strategy—would allow the remaining owners to access cash values in their policies as a resource to help them fulfill their obligation to purchase the departing owner’s interest in the business.

    Could a PASS plan be right for you?
    The benefits of using a buy/sell agreement to transfer a deceased, disabled, or retiring partner’s share of a business to the remaining owners are many. Unfortunately, the traditional methods don’t always work in the best interests of the business or business owner. Utilizing a general partnership to manage your buy/sell planning, however, could help mitigate the disadvantages presented by entity and cross purchase plans. The general partnership approach:

    • Requires only one life insurance policy per owner;
    • avoids the corporate Alternative Minimum Tax;
    • minimizes, through special allocations, inequities among partners in the cost of insurance coverage;
    • provides a full basis increase to the surviving partners after a partner’s death;
    • allows the surviving partners to distribute the insurance proceeds to themselves,
    • generally free of income taxes, in order to accomplish the business buy-out and;
    • permits the transfer of the policy insuring a departing partner to that partner income tax-free.

    As a planning vehicle, PASS combines the benefits of both entity and cross purchase plans – as well as additional benefits not present in either – while avoiding the disadvantages inherent in both. For all of these reasons, a Partnership Administration Success Strategy could be just what you, your partners, and your business needs to accomplish your goals and objectives.

    This content was prepared by The Penn Mutual Life Insurance Company and is intended to offer a general understanding of a Partnership Administration Success Strategy.  Any reference to the taxation of insurance products is based on Penn Mutual’s understanding of current tax laws; this information should not be construed as financial, legal or tax advice applicable to your situation.  Clients should consult a qualified advisor regarding their personal situation.

    Joseph Pilla is V.P. Advanced Strategies & Business Advisory Services for XXI 21st Century Financial 216-545-1781. Custom designed strategies for both individual & businesses through uses of; Business Valuations, Premium Financing, Business Succession/ Asset Protection/ Insurance/ Wealth Transfer/ Investment/ & Retirement Planning.

    © 2018 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172

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  • Next up: Tips for Your Business: Keep the Cash Flowing
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  • Tips for Your Business: Keep the Cash Flowing

    Cash flow management is crucial in effectively managing your business finances. Having a positive cash flow shows lenders, investors and vendors that your business is in good financial health; a negative cash flow puts your business in serious financial risk. The difference between positive and negative cash flow can mean the difference between a successful year and bankruptcy.

    Cash flow management is crucial in effectively managing your business finances. Having a positive cash flow shows lenders, investors and vendors that your business is in good financial health; a negative cash flow puts your business in serious financial risk. The difference between positive and negative cash flow can mean the difference between a successful year and bankruptcy.

    Creating prolonged periods of positive cash flow goes much deeper than just reviewing your monthly bank statements. True cash flow management is a delicate balance, stemming from your ability to hold onto your cash for as long as possible while keeping a steady stream of money coming in. “What often happens is that a small business owner will focus too much on their checkbook balance and not on who owes them money or who they may owe,” says Rion Safier of Rion Safier Accounting. “It’s important to pay better attention to the whole process of billing, collecting and payments.”

    Most businesses at some point will experience negative cash flow, but that is not necessarily a sign of failure. Accounts receivables are almost always to blame – nearly 70 percent of businesses have accounts that are greater than 60 days past due. Other contributing factors include normal cyclicity or seasonality in business operations. If you can anticipate that someday down the road you may fall short on cash, arrange for a line of credit to cover operating expenses for when things get tight. If you wait until that day arrives, chances are you won’t get approved

    Want more expert advice? Check out COSE Expert Network, an online forum connecting business owners with creative solutions to the tough questions they face every day.

    This article originally appeared in the June 8, 2015, edition of Small Business Matters.

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  • Next up: Top SBA lenders in Northeast Ohio
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  • Top SBA lenders in Northeast Ohio

    Small business owners in Northeast Ohio have plenty of options when it comes to obtaining SBA loans. This list shows the top SBA lenders in the region during the past fiscal year.

    Small business owners in Northeast Ohio have plenty of options when it comes to obtaining SBA loans. This list shows the top SBA lenders in the region during the past fiscal year.

    This list of SBA 7a and SBA 504 Loan approvals is for the period Oct. 1, 2014 through Sept. 30, 2015.  Third  party lender loans associated with the SBA 504 projects are not included, and SBA 504 loans are associated with the corresponding Certified Development Company, not the participating bank. The cities shown on the list correspond with the bank headquarters, not the location of approvals. The approvals are for the geographic area of the 28 northern Ohio counties administered to by the Cleveland District Office of the U.S. Small Business Administration. These counties stretch across the northern third of the state, including Toledo, so this list is not solely northeast Ohio.

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  • Next up: Understand Your Business Key KPIs
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  • Understand Your Business Key KPIs

    Not sure what to make of all of the numbers on your profit-and-loss statement, balance sheet or statement of cash flows? No need to panic! Matt Radicelli of Rock The House will walk you through the numbers you need to know to make your business a success.

    Not sure what to make of all of the numbers on your profit-and-loss statement, balance sheet or statement of cash flows? No need to panic! Matt Radicelli of Rock The House will walk you through the numbers you need to know to make your business a success.


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  • Next up: What's Your Business Worth?
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  • What's Your Business Worth?

    If you’re like most small business owners, you probably don’t know the answer to one of the most important questions about your business. And that is: What’s your business worth?

    It’s a simple, straightforward question but also one that many business owners don’t know. That’s unfortunate because having an accurate idea of what your business is worth, through a business valuation, is key for a number of reasons, including:

    • to better understand your business and its potential;
    • to know the value of your largest asset in order to properly plan for your retirement;
    • to ensure both your business and family are properly protected;
    • to plan for the future of your business with a qualified succession plan;
    • during buy/sell agreements with business partners;
    • when you sell your business;
    • when considering funding opportunities;
    • when building a trust or creating an estate plan; and
    • to prepare for taxable events, such as gifting or grants.

    Knowing the true value of your business is critical to proper business planning and achieving personal goals. In the weeks to come, I’ll be writing a series of blogs on Mind Your Business that will be digging deeper into a number of topics around business valuation and why this is a topic that needs to be in the forefront for you as we head into the new year. Please view the YouTube video below for more information or click this link to start your Business Valuation.

    I can be reached using the contact information below for any additional questions you may have.


    Joseph Pilla is V.P. Advanced Strategies & Business Advisory Services for XXI 21st Century Financial 216-545-1781. Custom designed strategies for both individual & businesses through uses of; Business Valuations, Premium Financing, Business Succession/ Asset Protection/ Insurance/ Wealth Transfer/ Investment/ & Retirement Planning.

    Registered Representative of and Securities and Investment Advisory Services offered through Hornor, Townsend & Kent, Inc. (HTK) Registered Investment Advisor, Member, FINRA/SIPC. 21st Century Financial is Independent of HTK. HTK does not offer tax or legal advice. 130 Springside Drive, Suite 100, Akron Ohio 44333. 330-668-9065

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