Opportunities Abound In Non-Qualified Deferred Comp
By Daniel J. Munroe
In his best selling book, “Who Moved My Cheese,” Dr. Spencer Johnson wrote a metaphorical story about a group of mice and “little people” living in a maze. The characters were constantly searching for cheese, which represented happiness and success. When the cheese began to run out in a section of the maze where the characters all lived, the mice did not fight change. Rather, they went on to explore other parts of the maze in search of the cherished cheese.
The “little people,” frozen in fear, watched the cheese supply dwindle. Instead of recognizing change they resisted, became angry and refused to leave the portion of the maze, which once flourished with cheese.
This story reminds me of many of us in the life insurance industry who, in spite of external factors right before our eyes, remain frozen in the same mindset. Specifically, while estate planning remains important, simply basing ones entire business plan on selling life insurance to pay for estate taxes is akin to the little people waiting for more cheese to magically appear.
Certainly, estate planning remains an important piece of your business, but it should not be the only piece.
Why is the market hot? A recent study on the new “retirees” by noted gerontologist, Dr. Kenneth Dychtwald, revealed some interesting results. Notably, the study found that baby boomers, by and large, were savvy consumers who demanded options, flexibility and control. In addition, Dychtwald provided that between 2000 and 2020, the number of Americans aged 55 to 64 would increase by 73%, and the number of Americans aged 60 to 70 would increase by 54%.
Need there be any more evidence that demonstrates that demographically this is a prime market?
As a society, we are living longer than any previous generation. It follows then, that more money will be required to support our lifestyles in retirement. Indeed, if you have not discussed retirement savings plans with your baby boomer clients who own small businesses, you are missing an opportunity to solve what may be their most pressing financial problem.
The non-qualified deferred compensation market offers the producer an opportunity to distinguish himself from the pack by offering a strategy that provides employers and high-income employees with a wide variety of tax and financial planning opportunities. The small business market for non-qualified deferred plans is significant.