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Some boomers plan to be entrepreneurs when they retire from full-time work.

For example, they plan to do consulting, set up a small photo or art studio, or start a small business, says Thomas Brueckner, president of Senior Financial Resources Inc., Nashua, N.H. That raises a question for financial advisorsnamely, what financial arrangements to recommend?

Say, for example, that a 54-year-old employed boomer has $70,000 in liquid assets and wants to start a photo studio at age 60.

In that case, Brueckner says, Id recommend he put $20,000 or so into short-term interest bearing instruments [T-Bills, CDs, etc.], and the remaining $50,000 into an equity index annuity.”

David M. Leber, president of Leber Financial Group Inc., Allentown, Pa., says he would recommend reverse dollar cost averaging. That is, gradually pull money out of traditional longer-term investments and put it into liquid holdings that the boomer can use when the time comes to make the move.

“Also, urge the boomer to start developing relationships with lenders,” he says.

Leber does not favor using deferred annuities for such boomers because the money is not liquid. As for immediate annuities, he says the interest rates are too low today to make them attractive.

But Brueckner says a deferred EIA, combined with the $20,000 liquid account, would be well- suited to many such boomers. Here is why:

–”The $20,000 in short-term interest bearing instruments creates the certainty that the assets will be there when needed, without being subject to market risk,” Brueckner says. The interest earnings will be low, he concedes, but the boomer can get to the money as needed, and in stages, if desired. And, if the funds remain untouched until the startup, the boomer knows the money, plus interest, is there.

–The $50,000 EIA gives the boomer the opportunity to earn market-linked interest over the next 6 years, plus the reassurance of knowing the earnings will not fall below the guaranteed minimum, says Brueckner. (The EIA chosen for this plan should allow 10% penalty-free withdrawals, he adds, so the boomer can make such withdrawals if needed to support the venture.) Another advantage of the EIA, he says, is that, since the boomer will be over age 59 when the new venture starts, the boomer will not need to pay the pre-age-59 tax penalty on such withdrawals. Finally, he says, the money that remains inside can keep on growing tax deferred.

“In this scenario, the $20,000 account will probably be enough to set up shop,” Brueckner adds. But having the other money in the EIA will provide important support.

Both advisors recommend against using stocks or bonds in these situations. Boomers who are starting up new ventures cant be exposed to that kind of risk, says Brueckner. “They do need and want growth that is above and beyond what CDs offer, but they cant afford to lose money. In addition, many have become very risk averse since the market downturn of the past 3 years.”

Leber has a mid-50s client who is now transitioning into owning several franchises after a career in the corporate world. “To make it happen, we are liquidating his mutual funds, keeping his assets fairly liquid and establishing relationships with lenders,” he says.

“Boomers cant wait until the last minute” to make such plans, he adds. They need to dollar cost average out of riskier investments and gradually build up liquidity.

Along the way, some might want to consider working with a psychologist to determine the type of work to consider and to review their lifestyle options.

“Most boomers will not enjoy the lifestyles they have come to expect,” Leber cautions. What they really need to do at this stage, he says, is “financial and lifestyle planning.”


Reproduced from National Underwriter Edition, May 21, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.