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The Baby Boomer Business Owner...Is Retirement a Requirement?

When FDR linked social security with retirement in the U.S. he adopted the retirement age used by Germany, 65 years old. Today our average life span is more than a decade longer than it was in FDR’s time and is still going up. The question before us is, “How will our business lives change due to the extension of productive lives of our insurance agency owners, most of whom are baby boomers?”

When FDR linked social security with retirement in the U.S. he adopted the retirement age used by Germany, 65 years old. The average length of life in the U.S. at that time was 63 (When Germany adopted the 65 year old retirement age, their average life span was 46). Today our average life span is more than a decade longer than it was in FDR’s time and is still going up.

The question before us is, “How will our business lives change due to the extension of productive lives of our insurance agency owners, most of whom are baby boomers?”

First, we must cover the crass truth. For those of us who come from genetic stock that tend to die in their sixties and seventies, the question of retirement is actually easier. If we have done well in our business and wish to spend quality time with family and doing other things, retirement is still a viable option. Inter-generational transfer of agencies, mergers and sales is still an option that will be exercised by many agents.

However, we encounter a larger and larger number of agents each year who very reluctantly enter the retirement pool. They may have promised children, employees, and others that they would turn their companies over to new owners. Agency Consulting Group, Inc. is called in to value the agency and structure the change of management along with ownership.

But a growing number of agents express reluctance and resistance when the transition is about to occur. They have planned for retirement but when retirement faces them, they don’t really want to leave.

It’s Really Not the Money!

If you are an agent of retirement age and find that you don’t have the assets to support yourself in retirement – even with the value of the agency earning you interest in an investment -- then you may not be financially able to retire. This is a simple analysis of assets vs. long term living expenses and we all should do this exercise. Call us (800-779-2430) if such an analysis is needed in your Perpetuation Plan.

Most agents are aware that Agency Consulting Group, Inc. is a primary valuer of insurance agencies in the U.S. What you may not realize is that we actually counsel agents away from agency sales and transitions when their financial conditions prohibit their retirement.

Most independent agents in the U.S. fall into two categories, those whose agencies provide them basic support for their families (it’s a job and a working income) and those whose agencies provide sufficient income to both support their lifestyle and sponsor investments for retirement plans. You don’t have to be a liberal spender to fall into the basic support category. A large number of insurance agents earn substantially less than a six figure income during their productive careers. Although their annual compensation may provide them sufficient income to support a family, few agents in this category can invest sufficient income in retirement vehicles to continue their lifestyles past their productive agency careers. If their agencies, themselves, cannot provide sufficient value to provide equivalent income streams after their retirement, they may find that retirement is simply not accessible to them.

These agents can still perpetuate, sell or merge their businesses, but they have to continue to work simply to maintain their lifestyle.

On the other hand, many agents have done an excellent job in their money management and, as a result, are certain that they can support themselves as long as their agency’s value provides sufficient additional investment returns in the future. But what happens if you CAN retire, but don’t want to??

If you are fifty or fifty-five, sixty or sixty-five or even 70 and still have the energy and stamina to pursue the insurance business, you should have the option to sell and leave the business, but you should not be forced to leave it.

If we look at the number and quality of the people entering the insurance business in the last twenty years (our agency successors) we find that we haven’t enrolled the same quality or quantity of insurance professionals into the insurance industry than we did in the 1960’s through the 1980’s (the Baby Boomers). That is not an accusation. That is a reality because those subsequent generations simply had fewer members and those people had many more options in career development than we did when we went to college.

How can we enjoy the benefits of our agency’s value but not leave it?

The answer is a mindset change that will permit senior agents to sell down their interest in their agencies but still stay active in the business. Most buyers (except, in some cases, long term participants in the agencies) desire the old owner to stay for some period to transition the customer and carrier relationships to the new owners. Many new owners would even welcome the continuing participation of the old owners in service and relationship maintenance roles to maximize retention and earnings capacity. However, the keys to the retention of the old owners are the transition of decision-making roles, the level of activity of the old owners and the compensation expectations of the selling owners.

Make no mistake about this -- The main block for having old owners stay with their agencies after a sale is EGO. The old owner has been in control for decades. If his ego cannot stand the transition of decision-making to a new owner, he must either continue in an ownership role or he must leave the agency. And this means that those high-ego owners may never personally realize the value of their agencies. Selling the agency and still retaining decision-making authority in the old owner is a recipe for disaster.

If, on the other hand, you can assume an “emeritus” position and continue maintaining relationships with your clients while the new owner makes the decisions and operates the agency then you may have an on-going role in the agency that is both productive and rewarding. Identify a specific book of business that needs your participation and the value of that role to the agency. The agency’s new owner will probably enjoy your active participation in retention (and in growth) of the agency’s book of business. Identify the appropriate value to the role and don’t expect a compensation level (and perks) equivalent to that earned while you were an owner. Your value should be equivalent to what you would pay to hire an experienced person to fulfill the role assigned to the selling owner – no more, no less.

Be Wary of the R.I.P.

Many agency principals feel that they have “paid their dues” and have earned more time off, additional perks, and leeway in their business dealings. While they are business owners, they are right. After they sell their businesses, they are described as R. I. P., Retired In Place. In the armed services we described short-timers who no longer adhered to the rigid rules of behavior as R.O.A.D., Retired on Active Duty.

Neither the armed forces, nor the independent businesses in the U.S. can afford participants who are R.I.P. or R.O.A.D. If your desire to remain in the business stems from the desire to remain active, to continue to serve your clients and to support the next generation of agency owners, it is commendable and should be pursued. Financial issues should be considered because value received is equivalent to value paid. But if you seek a continuation of your compensation (or its equivalent) without your active commitment of time and effort to the company, please reconsider your position.

No, Retirement is not a Requirement. It remains an option for agents who are tired of the “grind” or can no longer abide with the clients, the carriers, the employees or the vagaries of the industry. If they are still energetic enough to be active in the community, they should sell, retire and seek other avenues for their continued activity and mental well-being. A new career and community service are examples of fulfilling directions that take agents out of the insurance industry but doesn’t put them in a rocking chair.

If you feel that you’ve just “hit your stride” and are finally at the point that you no longer worry about the next sale, you may be better served (and live longer) by remaining active in the insurance agency – as long as you don’t get in the way of the new owner’s direction for the agency.

If you can neither afford to retire or have no potential successors, you MUST continue working through your later years, but you don’t have to concentrate on growth. Many agents have taken the decade after they should have retired to reduce expenses and time in the agency and wean the agency down, enjoying greater returns during those years than when they were forced to fund personnel, systems and business growth. It can easily take ten to fifteen years to wear an agency down to a pure service level for the existing client base. This may be considered for agents in circumstances in which the sale of their agencies would not return sufficient funds to sponsor their lifestyles for their expected lifetime.

Call Agency Consulting Group, Inc. for your Succession Planning and Perpetuation Planning needs (800-779-2430).