Retirement Plans for Small and Medium-Sized Business Owners: My Chat with Susanne Mariga, CPA of The Profit Talk

Accountants love a good retirement plan, and it seems each has their reason beyond just tax-efficient retirement savings! I was recently a guest on Susanne Mariga’s show, The Profit Talk podcast. The focus of the discussion was on strategies for maximizing profits in businesses through effective retirement planning.

Susanne’s audience is small to mid-size employers and she emphasized the importance of building profits over time to secure retirement valuations and avoid financial burdens in later life. She underscores the significance of retirement planning, particularly for entrepreneurs, highlighting the need to create generational wealth and ensure self-sufficiency in retirement.

I took the view of how it benefits the business, discussing the state of retirement plans in small businesses, noting that a significant portion of employees lack access to work-sponsored retirement plans, particularly in smaller companies. There are obvious benefits of offering retirement plans including attracting and retaining talent and offering different plan options tailored to different business needs. Every plan has a reason for existing and when properly designed, reflects the needs of the business and its employees.

We also highlight the importance of proactive retirement planning, avoiding common pitfalls such as inadequate flexibility in plans, underestimating employee interest, and neglecting plan maintenance. We provide insights into finding qualified retirement specialists and emphasize the significance of informed decision-making and compliance with regulatory requirements.

Below is the transcript of our conversation if you’re into reading over listening - enjoy!

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Susanne (00:32): Welcome to the Profit Talk show, and on this show, we're going to explore strategies to help you maximize profits in your business while scaling and creating the lifestyle that you want as an entrepreneur. I am your host, Susanne Mariga. I am a certified public accountant, a certified Profit First professional, and a certified tax coach. And today we're going to talk about strategies to help you maximize profits in your business.

Hello, Profit First entrepreneurs and thought leaders. I am so excited today - we have a special guest. Her name is Courtenay Shipley. And Courtenay is the founder and Chief Planologist of Retirement Planology, which is a consulting and registered investment advisory firm for corporate-sponsored retirement plans. She has a wealth of experience in the retirement industry and she works with her clients, really, to perform investment analysis, plan design, employee education, and really helps employers create retirement plans within their company. And today what we're going to do, is we're going to talk about your retirement. Unfortunately, when I see a lot of businesses, a lot of them are looking for that valuation that they're going to get when they retire. And the reality is your business to get that valuation, you have to have profit along the way, right? And the best way to really secure your retirement is to start now.

So I'm excited to have Courtenay on our platform to talk about retirement and setting that up, and what's the best way to go about that so that you can create that generational wealth. And really, I think my husband says it best, one of the best gifts that you can give your next generation is your own self-sufficiency, meaning that they don't have to worry about how they're going to take care of you. I remember when I first started my business, there was a guy that was very popular in our business community, and I remember he had a death that he died pretty young and unexpectedly. And I remember his widow was at the funeral asking for donations in order to fund the funeral costs. And we don't want any of you guys to be that. So this is an important discussion that we want to have today. So please join me in welcoming Courtenay Shipley to our platform. Hey Courtenay, how are you doing today?

Courtenay (02:48): Hey, I'm great. Thank you so much for having me. I'm so excited to talk to you today.

Susanne (02:53): Well, this is a very important conversation, right? Agreed. Very needed, very important. And Courtenay, always like to start off, you are obviously working with a lot of companies, you're helping them set up their retirement plans. What's the state of retirement plans in small businesses today? What are you seeing that's common?

Courtenay (03:13): Well, if we look at it from a national perspective, about half of America has access to a work-sponsored retirement plan, which is a bit of a problem because most people are going to save in that plan if they have access to it. I think the data shows Americans have, they're 12 to 15 times more likely to save in a work-sponsored plan than they are on their own in an IRA individual retirement account, something like that. And so there's been a lot of push from a regulatory standpoint the last few years to try to get more retirement plans sponsored by the workplace, making it easier, giving tax credits, things along those lines. And the sad part is that in the small business community, particularly 78% of the employees who work for companies with less than 10 employees, they lack access to a plan. So small businesses, this is your opportunity to be special if you offer a retirement plan. It's a really good way to attract and retain good talent as a benefit for them and also to help yourself save for retirement and hopefully, like you said, change the trajectory of not only yourself but your employees for later in life.

Susanne (04:31): I love it. Now with retirement plans, there's a variety of different plans that employers can offer. They can do the traditional 401k that's safe harbor, they can get into SIMPLE IRAs, that type of thing. And every business is different and it's going to cost more. And depending on how you set that up, where would you go about starting with in terms of determining what is the best type of retirement plan for your company at a particular stage?

Courtenay (05:02): Yeah, whenever we work with a new client, our first question is what do you want this plan to do? Because every plan has a different purpose and maybe it's to help the owner save. Maybe it's because you have extra profits and your employees have been really instrumental in helping grow the business and you want to share some of those with them. It could be a lot of different reasons. It could be just part of your company culture, your way of giving back. And so we work with clients to figure out first, what are we talking here? Do you want to save? Is it all your employees that want to save? How much? And then you start drilling down into the different plan types. So you mentioned some, there's a SIMPLE IRA, SEP IRA, a 401k, 403b if you're a nonprofit. And they all have different limits for how much can be contributed. They all have different ways of being run and different administrative costs that go with them. So that's our first thing is just to figure out what it is that you want your plan to do. What purpose is it serving here? Is it more of an attraction and retention tool or more for designing something around what the owner's trying to do and taking it from there?

Susanne (06:09): Right. Let's say someone that's starting out really, what are some of the ideal situations for each type of plan that we talked about? Like the SEP versus SIMPLE versus 401k?

Courtenay (06:22): Yeah, I mean, if it's a small business, and I'm talking like 1, 2, 3 employees, you may be looking more at a SEP IRA. The SEP IRA is great, but you have to treat everybody the same as far as how much the contribution goes in. So whatever the owner's putting in for themselves, they have to put in for the employees. You can do a SIMPLE IRA that has a higher limit, not as high as what the 401k plan has for putting it away, but it does require an employer contribution. So that's that question of do you also want the business to be contributing to it? And then the third is, do you want to max out with a 401k plan? The maximum this year is $23,000. Unless you're turning age 50 or older, then you can put in $30,500. So those limits will change every year, but it's taking a look at how much employees and you want to save.

Now in some states, they are requiring that you start a retirement plan for your company. There's 13 or 15 states, somewhere around in there, and many others who have legislation ready to go where they're going to require you to use a state-sponsored plan, which is just an IRA plan or do something on your own. So that could be a really good solution for a very small company starting out just as like a starter plan, get everybody in the habit of saving and then later on you layer on those other things that I was just talking about.

Susanne (07:53): I love it. So if someone is wanting to get one set up, where do they start? What does that look like?

Courtenay (08:00): Yeah, so if it's a SIMPLE IRA, SEP IRA, anything that has IRA in the name, typically they can just go to any financial advisor, any financial institution. Once you cross over into 401k land, that's where you want to have somebody who is more specialized. One of the problems that we see is that plans get set up without…they're looking at what's happening today, but they don't have an eye for the future. And the plan design is so important so that you don't pigeonhole yourself. You mentioned safe harbor and what that means is a way to give all of your employees a contribution and it gets you out of some of the IRS non-discrimination testing, and that might be good for today. It might be terrible for tomorrow or vice versa. And so working with somebody who's more specialized in company retirement plans like us, let's be real, would be the best route to go.

Susanne (08:59): I know a lot of entrepreneurs when they first are approached about starting a retirement plan, the first thing they're thinking is like, oh my gosh, how much is this going to cost me? And is this going to grow and become unaffordable, right, because of company growth, more employees being added? What advice do you have for these entrepreneurs?

Courtenay (09:25): The advice that I have is that the retirement plan typically follows health insurance. That seems to be the one that people care more about. So I would put more focus on that first, and then retirement plan may be second. It's never a bad thing to ask your employees, do you want to save for retirement? Would you like that as a benefit and an opportunity? And if they say, no, I don't care at all about that, versus, oh yeah, that would be great - that's important information to know. The other thing to plan on would be, how does this interact with your business operations? So looking at who your payroll provider is and do they have a direct link with a financial institution -  or we call it 401k record keeper - in order to save you time and effort because every small business is so overrun with a million things to do and a million hats to wear.

So something that can transmit the data that's already in your payroll system over to the retirement plan, the same information, that's really helpful. So looking at the operational side and there will be something that goes along with every payroll going forward, so that's a cost even if it's hidden. And then the next part would be, what is the actual plan going to cost you? And so I rarely see anybody spend less than $2,000 on a 401k. I would say it's probably more like five or $6,000 in overhead expenses. That's why a lot of times they're not the best option to start off with for very small businesses, but they become something that you grow into. What you're looking for there is, do people or yourself want to save more than some of those plans we named before? Do you want to treat employees maybe differently? Put a vesting schedule on the benefits so they earn ownership over time, things like that. But I would say from a cost standpoint, the one that everybody concentrates on is the overhead, but you should also know that there is a tax credit for starting a new retirement plan. So that's out there. Make sure that you take advantage of that when you do start one.

Susanne (11:39): I love that. So make sure you guys are speaking with your tax accountants so that you can get that credit at the end of the year when it's time for filing. Now, I know that it's always a good thing to have a diverse portfolio. You don't want your entire nest egg necessarily being in a retirement account. There's also personal investments, too. Let's talk a little bit about what that looks like and gearing up for retirement, Courtenay, with that and building a diverse portfolio that's available for you.

Courtenay (12:11): Sure. So when we think about business owners and what their retirement picture looks like, they'll have their business as the asset. That's of course very important that you build value. That's where you come in and helping people to do that. As you know, people like to buy profitable businesses. So that's how you extract the wealth out of the business that you're growing. The next part would be some sort of what we call paper assets. Your 401k would fall under that. That would be your stocks and bonds or other types of financial assets that you see on paper. Then there's the third aspect, which could be something else that generates income for you. So in some cases it's like a real estate or other type of mailbox money, something that you have that a check just shows up on. It's similar to the concept of social security and that's the other piece that goes along with your retirement. So those are the four areas pretty much that people are looking at when they are thinking about what does their retirement look like and where will it come from. I do want to point out that because your audience is business owners, retirement plans, specifically the 401k, has more creditor protection to it than an IRA or if you had rental property or something along those lines. So if that's something you're concerned about or want to de-risk another way to save for retirement that's a little bit more protected.

Susanne (13:43): I love it. I love it. So that's definitely looking at what your risks are and what you might have up in the pipeline, what you might need to do. Definitely looking at a way of shielding that and protecting that is very important as a business owner. Now, the market has been interesting over the last few years. We've seen some ups that were wonderful. We've seen some downs that we’re wondering if we would ever recuperate. With you being an investment advisor, what are some things we should be looking out in the market?

Courtenay (14:15): Well, I think that a lot of times I hear now is not a good time to invest. And I will tell you that there has never been a day where you couldn't make that argument. So what comes back to you for retirement, you really have to focus on being a steadfast investor and that means consistently putting money aside. And when it comes to retirement, there's two pieces. There's how much you can afford to save and then how much time it has to remain in those investments and stay invested. So the more you can front load in your years, the less you have to save over the life of your career and the longer it has to work for you. So if you are getting short on time, you might have to load up more on contributions and take a little bit more risk maybe than you thought you would have to on the investment side. So that's the biggest one is I know that the news articles always have something, all the different headlines always say today's a terrible day for various reasons for investing, but at any point in time in history, you could have also made that argument.

Susanne (15:22): So how do you know when you have enough - what's enough?

Courtenay (15:25): What is enough? Isn't that a great question? So working with this is not our expertise, but working with a personal financial advisor who can step you through the process of figuring out what it is you want to do when you have the luxury to decide how you spend your time later in life, what does that cost? And then working backwards into what do you need to save today in order to get there and what does your business need to be worth in order to get there? And there usually is an “enough” amount for everybody, but if you don't have - what is it from Alice in Wonderland - if you don't know where you're going, any path will do. The Cheshire Cat says it's the same for your personal finances and for retirement plans in general.

Susanne (16:12): Got it. So start with your financial advisor or your personal financial planner and work backwards because everyone might be different, right. Depends on how old you plan to be when you retire, how many years you're going to spend in retirement, what lifestyle you're used to. If you're used to traveling the world and suddenly you're home as a couch potato, that might kill you, right? So we got to have fun in retirement, too, and start realistically thinking about, what do I want to do those last few decades of your life as you're living it up.

Courtenay (16:47): Two, maybe three decades. My grandfather is turning 100.

Susanne (16:50): Congratulations. You got some good genes there. Crazy. Some very, very good genes. 

Courtenay (16:55): I gotta save!

Susanne (16:56): Yeah, definitely. So Courtenay, I'm just curious where you see it goes wrong, where people are looking at regret, where do you see it going wrong, and how do we prevent that from happening?

Courtenay (17:09): For company retirement plans? I see it going wrong where the business owner did not leave themselves enough flexibility. So they're having to make a contribution to the retirement plan that they didn't expect or that they just no longer want to make because of financial conditions. So working again with somebody who really understands the ins and outs of all those retirement plans is super important because you want to leave yourself enough runway and flexibility in them. So that's one place we see it go wrong. The second is just underestimating that employees might want to have this type of plan. For many folks, they just haven't thought about it, especially if it's a minority-owned business. We know that the statistics are not great for them having or offering retirement plans. And so will that make your business special? Yes, it will, especially if it's a smaller company and you're competing for talent with larger competitors.

So really having that dialed in, and another mistake, let's see, I would say is just outgrowing your plan and not realizing it. So again, this is one of those…that it does need care and feeding over time. You do have to pay attention to it at least once a year to just reevaluate where things are. And so when you're assessing your taxes and everything else, this is a perfect time to be looking at your retirement plan and seeing, is this something that we need to make changes with? So putting it on autopilot and forgetting about it is not the best solution.

Susanne (18:46): Making sure that person is making those contributions because the reality is if you've got somebody that's not remitting them timely contributions, this is money you're holding in trust that doesn't belong to you, it belongs to the employee. And so you’ve got to have somebody that is responsible that respects the laws of ERISA and makes sure that those contributions are remitted timely because we don't want any fees or penalties that are being tacked on top of that. Right. That's right. Because again, that's more drain to your profit, which is not what we want at all happening.

Courtenay (19:19): No, no. And on that subject, there's two main errors that we see committed with plans, and that is having the wrong definition of compensation. So, oh, I gave them a bonus, but I forgot to take the retirement money out of the bonus or something like that. Just kind of not having that quite dialed in correctly. And then the second was what you said was the timely contributions, making sure that money gets over to the record keeper as soon as it can.

Susanne (19:47): Definitely. So I'm curious, I'm hearing a whole lot about whole life and those annuities, and that's a pretty controversial topic and glad that we have you here. I'm curious, what's your take on it?

Courtenay (20:01): Well, so I've run on the retirement plan and institution side. So there's been a big push for having more opportunities for people to look at what they call lifetime income, whether that be inside the retirement plan or adjacent to, or an option when you go to take your money out when you're 65. And I think there's a time and a place for all of those different financial products, otherwise they wouldn't exist. And so what the important thing is, is that you evaluate what it is you need and what kind of sense of security you need around that. And so for many people, they take their 401k balance and they just take small distributions from it for the rest of their life and that's fine. They're still okay having it invested in the market going up and down. And then there's other people that say, I've got these four things, my house, my utilities, whatever, that I just want to know will be paid for the rest of my life.

I'm willing to exchange part of my balance with the insurance company to get a guarantee. And that's really all an annuity is - just a guaranteed payment of some sort. And so it's just really important to be evaluating that decision with somebody who understands your full financial picture and can help with the way that the contracts are laid out, all the different writers and bells and whistles they have. It's a pretty complicated product, I would say, overall when you talk about annuities. So just understanding what you're buying is really important. And for retirement plans, I think that you'll see a trend where there's going to be something where you can just flip a switch and money can just start coming to you. And how that happens remains to be seen. But there's definitely a push for a lot of workers to have options where there's a guarantee built in.

Susanne (21:53): I love it. And it's interesting, too, because a lot of times those whole life policies, it's depending on your premium, it's not a short-term commitment. It's a long-term commitment. And if you've got a really…

Courtenay (22:05): That’s a whole other beast!

Susanne (22:06): And suddenly you're not able to pay it, there's a downturn in the economy or a downturn in sales, you lose that investment and you may not be able to recoup that once you let it go. And so like Courtenay says, it can be very, very risky from that perspective, because you don't control the future and some of those premiums can be pretty stiff. So Courtenay, how does one go about finding a corporate retirement specialist? How do you choose who you're going to work with? What makes a great advisor? Where do you start with that?

Courtenay (22:43): Yeah, so I would ask the question of any financial professional that you're thinking about working with, how many retirement plans do you work with? It's odd, but the number 10, if they have more than 10, that usually means that they have a specific focus on it rather than just, well, we accommodate these as part of our practice. So that would be something to think about is, how many plans do they have? Some industry designations that are specific to retirement plans. So for example, the accredited investment fiduciary, the certified plan fiduciary advisor, things like that rather than just a CFP. A CFP is great. A chartered financial planner, those are awesome, but they don't focus specifically on how all the ins and outs of those retirement plans work. So that's where I would start. I'd also look for a reputable firm. You can go online and on the SEC website they have, I think you just Google “broker check.” You can find it, but that'll get you anybody who's registered their background information so you can see if they have a history behind them that you don't like or you do. And it will let you know if there's any red flags there.

Susanne (24:00): I love it. So Courtenay, how do our listeners and viewers, how do they find you? How do they connect with you? How do they work with you?

Courtenay (24:08): Sure. Well, I'm on LinkedIn (linkedin.com/in/cshipley). It's pretty generic, pretty easy. And then also you can go to our website, which is retirementplanology.com/learnmore, and there's a wealth of information on there, our blog as well. So you can take a look at the resources that we've made available.

Susanne (24:29): Thank you, Courtenay. This was great information and this set everybody up for success and really be able to create that generational independence for that, really that burden to put that next generation that's coming up.

Courtenay (24:41): Yes, definitely. Thank you so much for having me. It's been lovely talking to you.

Susanne (24:45): Thank you, Courtenay. I want you to have your most profitable year ever. Yes. No matter what's going on in the economy, no matter what's going on in the world, you can have your best year ever. And I want to show you how. Join me in our private Facebook group where I will be hosting our free - yes, I said free - Profit First masterclass on Facebook. Please join the Profit First Masterclass with Susanne Mariga, I look forward to seeing you there and watching you have your best year ever.