The Experts Up Close
Alexander Sonkin, a former member of the Chicago Board of Options Exchange, Chicago Board of Trade and Chicago Mercantile Exchange, is an asset manager for the ultrahigh-net-worth clients at Capital Consulting Company.
Mark Stevens is the CEO of MSCO, a management and marketing firm, and a popular television commentator. Stevens' firm represents clients such as Nike and Virgin Air. The best-selling author of Your Marketing Sucks, his latest book is Rich Is a Religion.
Dennis O'Brien founded Coastal Financial Advisors Inc. after several years of working in the technology industry at firms such as Bell Atlantic and AT&T Labs. He speaks on a variety of wealth-related topics, including retirement and estate planning for individuals and families.
Q: I’m 50, and not saving as much or as quickly as I’d like for retirement. What can I do to retire comfortably at age 65?
Alexander Sonkin: The most important thing you can do is to shift your priorities and save at least 15 to 25 percent of your yearly income. By consistently paying yourself fi rst, you will reach your goal. If saving for retirement is truly a priority, you should reduce unnecessary expenses, such as vacations, eating out, etc. You are trading in the temporary pleasures for a permanent nest egg that will provide the most valuable thing of all: peace of mind. The second thing we would advise: Stop funding your IRA/401k for the tax deduction beyond the corporate match; as you will find in retirement, the tax you will pay on the distribution will be (typically) more than 15 times what you have saved on the original deduction. We recommend that our clients reduce their taxable income via the mortgage interest deduction, if taxable income is too high. By investing your nonperforming home equity into safe, liquid investments that earn more than 8 percent per year after taxes (maximum funded, equity-indexed UL policies structured by a highly skilled professional); you will enhance your expected retirement income by more than 8 percent when compared to traditional retirement planning strategies, and you will also eliminate the downside risk of traditional stock market investing. Our most successful senior clients have acquired the vast majority of their wealth from either passionately building their own business within a niche market or from real estate investing. Many of our happiest senior clients continue working, doing something that they love for as long as they can. This means they are still productive, adding value to the world, feeling great about themselves and they are also earning additional income.
Mark Stevens: It sounds as though you have a decade until you want to retire. The best way to play catch up, and that’s what you’re doing, is to find additional means of generating income through appropriate investments or a side business. Finally, you’ll want to clearly
defi ne comfortable. Put a price tag on that and then reverse calculate to how much money you’ll need to save. In doing so, don’t be led by the other people’s view of what a successful retirement means.
Q: How do I know how much money I need to start a small business?
Alexander Sonkin: This depends on the type of business you are passionate about operating. There are many sales and marketing business ownership opportunities where the startup costs can be as little as $100, but the real cost will be your time and energy.
Dennis O’Brien: Every business is different. Begin by thinking about the business you are interested in starting. Write down all of the equipment you think you will have to buy. Then list what you anticipate your monthly expenses will be, including paying rent, purchasing supplies, marketing, utilities and insurance. Take your total expenses and add to it your anticipated salary. You would also need to add a profit margin of between 5 and 20 percent, depending on the type of business and what the market will bear. This will give you the total revenue you need to produce on an annual basis to meet your cash flow, provide an income for yourself and make a profit. You will need enough capital to carry you for about three years, at which point you should start showing a profit. Some businesses may show profits sooner, some later.
Q: As the cost of living increases, fuel prices increase and the stock market is in flux, is there anything I should be doing differently with my money?
Mark Stevens: First, make sure that you have a lump sum put aside in relatively bulletproof vehicles such as T-bills, insured CDs, high-quality municipals or top-tier corporate bonds. You need to make certain that if the stock market truly crumbles, your personal wealth—no
matter how many or few zeroes are associated with it—is not jeopardized. Second, it’s unlikely you’ll drive less or eat less, so stop making yourself crazy. Commodity prices go up and down, and there’s nothing you can do to control them, but there are ways you can increase your income by working harder or smarter by changing jobs or opening a small business, which is the highest and best use of your time and energy.
Dennis O’Brien: If you are concerned about the rising cost of living, you should be looking for ways to cut back on your expenses. For example, the bundled packages from the cable companies and cell phone companies are not always in the best interest of the consumer. Review your package, and reduce the channels you don’t watch. Review your cell phone bill and drop the unnecessary services that are not needed. Switching your home lamps to compact fluorescent light bulbs will reduce your electric bills.
Q: With the economy the way it is, is now the time to start a small business?
Alexander Sonkin: Absolutely, yes. Today is the greatest time to be alive and make money in the history of the world, especially for small-business owners. Technology has enabled the small-business owner to not need nearly as many employees and to work from a home office. The small-business owner has many advantages over medium/large businesses: namely, being able to participate in niche markets, being able to switch gears quickly to stay ahead of the curve and to provide impeccable customer service to clients that larger corporations may be leaving behind. The thing to focus on is to do what you love and do it with passion. By solving big problems, you will earn big money. If you solve small problems, you will make small money.
Mark Stevens: The economy has nothing to do with it. Your mindset has everything to do with it. If you are prepared to take on the risk and to demonstrate the relentless drive that it takes to make a small business succeed, you can do well at any point in the economic cycle. In fact, I like the down cycles best, precisely because everyone is stuck away inside a bunker. Clearly, there’s a vacuum you can fill.