Monday, July 10, 2017

One woman's retirement savings advice: Ask questions, especially about fees

“The power of compound interest is the most powerful force in the universe,” - Albert Einstein.

We sat in the restaurant booth,  coffee at hand, while peering at her open lap top computer screen.

“I thought everything was going well, until I saw this,” she said, gesturing toward the computer. “I wasn’t sure what to do with this or where to start. This feels over my head.”
The “this” was a screen filled with a list of holdings inside her Individual Retirement Account. There were lots of mutual funds, more than 20. All with obscure names, each with several thousand dollars of value.

“The plan was to simplify my life but this feels much bigger, overwhelming,” she said with a laugh. “I am not sure where to start.”
For more than 25 years, my friend had focused her creative energy on owning and running a marketing business. It was a hectic enterprise with employees, lots of clients and an ever-changing list of challenging projects. Not much time to worry about retirement. Besides, she had someone taking care of that for her.

Over her years of self-employment, she stashed money when she could in an Individual Retirement Account managed by a local adviser representing a national brokerage firm.
Occasionally she met with her broker friend to get an update on her account, learn that it was “doing well” and growing in value. Little to ask about, right?

Now it was time to make some changes.

My friend, widowed seven years ago and in her mid-60s, has sold her business, downsized from a big house and has found a new rewarding relationship. Still working part-time, her life is full.
Meanwhile, her long-time financial adviser has retired to Palm Springs.

With the personal connection gone, she asked herself why not move her retirement money to an online self-managed account and take charge of her IRA portfolio?

It seemed like a simple plan. Step one, electronically transfer the account, which she did.

But what popped up on her new account screen with the online brokerage firm was a surprise. This was not what she thought she was invested in. The multitude of mutual funds would each need evaluation for their performance rating and management fees.

She also realized that yes, she had an IRA but some of her savings had been placed in a taxable account. That meant sorting out the cost basis and tax implications of the holdings there.

Fees matter

Not long before her broker retired, my friend had asked what the overall annual management fee was for her account. The answer: 2 percent on the total assets.
In talking this over with my friend, my guess is that the fee did not include separate transaction fees charged every time a new mutual fund was purchased or sold. That is a lot of churn over the past 25 years.

My friend listened with interest as I explained why fees are such a big deal when it comes to retirement savings.

While 2 percent may not sound like a lot, I said, over a life time of saving it can mean the difference of tens of thousands of dollars of fund value. That’s because a higher fee means less money is going back into fund reinvestment. According to a report in U.S. News & World Report, “the top determinant of (fund) performance is expenses,” not superior management skills.

For example: An investor, age 25, who contributed 10 percent of her salary a year to a 401(k) or IRA that earned 7 percent annually would have $730,000 at age 65, with a management fee of 1.5 percent.
By comparison, with expenses of just 1 percent, the end result at age 65 would be $830,000. And if expenses, according to U.S. News, were just 0.5 percent, her retirement savings nest egg at 65 would total $934,000, all other things being equal.

The shocking difference in end result between 1.5 percent and 0.5 percent in management fees over a lifetime of savings and reinvesting is $204,000!!!

While there is plenty of commentary out there on this issue, my guess is that most women such as my friend are uninformed and are not aware of how management fees can undermine long-term savings strategies.

Managed vs passive

In addition to management fees, there was a second issue for my friend: the performance of actively managed mutual funds versus passive index funds.

According to an annual Dow Jones report, actively managed (with higher fees) mutual funds DO NOT perform as well as the S&P 500 -- the 500 largest U.S.-based companies.
In the latest (2016) comparison, 84 percent of large-cap mutual funds generated lower returns than the “passive” S&P 500 index. In other words, you are paying more and getting less return.
My experience also proves the point. My portfolio that includes a mix of individual dividend-paying stocks and a couple of index funds is 7 percent behind the performance of the unvarnished S&P 500 in just the past 12 months. Sigh.

Nurturing the nest egg

So here my friend is at age 64, starting to take charge of her ongoing retirement nest egg that may need to last another 20 or 30 years.
She has a lot of work ahead of her. She will need to determine the cost basis (how much she paid) of each of the taxable funds in her individual portfolio, then determine the tax hit if she sells them and whether it makes sense.

Separately, she will need to sell some or all of the higher-fee mutual funds in her tax-deferred IRA and then decide how to reinvest her consolidated money. Why not a low-fee S&P 500 stock index fund?

Because of her business experience, my friend is far more capable of getting on top of this than many women I know. These are the married women who may have earned a full-time paycheck, who may have managed the ongoing household budget and paid the bills and who may have occasionally met with a financial adviser or broker.

But who also may have not been interested in the details because their spouses took the lead or they were too busy and trusted a financial adviser.

“Can you imagine coming at this, if you had no clue,” asked my friend.

In the past few months, she learned a lot: How complicated the financial industry makes it for individuals (women) to sort out their investment portfolios, how account management fees can have a long-term impact on saving, eroding a retirement account by tens of thousands, if not hundreds of thousands of dollars.

Her trust in the financial advisory industry is in serious jeopardy. She is frustrated at feeling over-her-head when trying to sort it all out.

Here’s her retirement savings advice to other women:
- Get the details of your investment portfolio and the fees you are paying on the holdings inside that account.

- Keep asking questions until you absolutely understand what is going on.

- If you don’t understand something, work with a fee-only adviser or trusted friend to simplify your portfolio or convert your plan to one that YOU can manage.

- Stop paying the brokerage firm and start paying yourself.

- Have a trusted friend or family member attend all meetings during the process of discovery and implementation. A second set of ears will help to reduce the stress of trying to understand all this involves.

- And keep learning!

Tuesday, June 6, 2017

Timeshare contracts: How to get in, how to safely get out

"Almost everything will work again if you unplug it for a few minutes. Including you." - Anne Lamott, novelist, essayist. (1954 -    )


Millions of Americans have purchased a timeshare. Nine million households to be exact, according to the American Resort Development Assn. and Consumer Reports magazine.

With an estimated 1,500 timeshare resorts operating in the U.S. and some 121,000 vacation properties worldwide, there is a lot to choose when searching for that piece of paradise.

The good news is that the industry has come a long way from the 1970s when timeshare properties were marketed with shady come-ons and high-pressure, misleading sales tactics.

Consumer Reports says, the “industry has become more consumer friendly and transparent.”

That’s because major hospitality chains --- Disney, FourSeasons, Hilton and Marriott – now are among the big players and have made the business more attractive and reputable.

These days you can shop online or chat live with a property representative to get detailed information about the costs of ownership including the buy-in fee and ongoing annual maintenance costs.

For many, the timeshare concept makes sense: Multiple individuals share rights to use a property, each with his or her own allotted time frame…usually a fixed week each year. Often now called, “vacation ownership” or “interval travel” programs, the idea is to get an affordable vacation at a luxury location.

In 2014, consumers bought almost $8 billion worth of timeshare properties in the U.S. The average sales price was $20,020 with an average annual maintenance fee of $880.

Median age of timeshare owners is 51.  However, the median age of more recent buyers is 39, half have children younger than 18.  The newer owners are younger, more affluent, more diverse and better educated.

Questions to ask yourself when buying a timeshare contract:
- Are you committed to vacationing every year? Will the resort you are considering stand the test of time?
- How much will you be spending on vacations in the next 10 years?

The experts recommend that you consider this a LIFESTYLE investment, not a FINANCIAL investment. It is best not to expect your money back.
Average out your annual vacation expenses. If you’re paying $100 a night in annual timeshare maintenance fees for a week’s stay and you already paid $20,000 for that week’s stay upfront, it doesn’t make sense to pay full retail price for a timeshare.

The reality is that there are many timeshare properties for sale at a fraction of their original cost. The Internet offers lots tips for how to get a good deal by buying a resale.

When buying new or a resale make sure the written contract contains all the promises made during the pitch. You could run the contract by a timeshare attorney. Know what the cancellation policy is in case you change your mind. Talk to other owners in the timeshare you are considering. What is their level of satisfaction with the property?

Buy-in with a flat upfront fee, don’t buy over time, the experts say. And be prepared to manage your contract going forward, along with the program’s “point system,” changes in ownership and tiered memberships.

As for resale value, a timeshare is more like a car than a house, it depreciates. There is no shortage of web sites including eBay, RedWeek, and Timeshare Resale Vacations that advertise timeshares for $1, put up for sale by owners who want out.

Resale scams

But reselling a timeshare is where the industry still wallows in potential scams. A reseller may offer to unload your timeshare for an upfront fee. Then ask for more money for marketing. You finally realize that they are NOT selling your timeshare, but just taking your money. Lots of consumer complaints about this.

Recently, a timeshare resale operator was charged with fraud by the feds for bilking timeshare property owners out of $15 million by charging up-front fees based on false promises.

Legitimate fees are typically paid after a sale is concluded.

The Federal Trade Commission Web site at offers resale tips.

Also check out the American Resort Development Association at


Tuesday, May 9, 2017

Early retirement buyouts. How to evaluate an offer.

"It is never too late to be what you might have been." - George Eliot, novelist, poet and journalist, who was Mary Anne Evans but used a male pen name. (1818-1880)

By Julia Anderson
Despite the improving economy, employers in certain industries continue to look for ways to cut costs by laying off workers.

Kroger Co., parent company to Portland-based Fred Meyer stores, announced late last year that it will reduce costs by offering early retirement to 2,000 corporate administrative employees.  Depending on how many employees voluntarily accept the buyout package will determine how many will be laid off -- without the package -- to meet the 2,000-job reduction quota. Kroger administrative employees were given two months to make up their minds.

Boeing Co. said it will implement a voluntary early retirement plan this year. Intel, Oregon’s largest private employer, has been cutting jobs. Boeing said as many as 1,880 machinists and engineers could be affected.

In offering early retirement packages or job buyouts, employers must be careful to avoid age discrimination. But there are proven legal ways to do that. The early retirement package or buyout must be voluntary based on tenure or other neutral criteria. A worked must get at least 21 days to consider the offer.

Employees accepting an early retirement or buyout will be asked to sign a carefully drafted “release agreement” explaining their rights under federal law as they walk out the door. That makes it hard to sue for discrimination.

So how do you evaluate an early retirement package if you find yourself in the cross hairs your employer’s cost reduction/buyout program?

There is much to consider: health insurance coverage after you leave the job, how close you are to age 65 when Medicare kicks in, how close you are to taking Social Security benefits and whether the company might offer “bridge money” to get you to Social Security.

The biggest decision comes first. What are the consequences of turning down the buyout offer, dodging the layoff bullet and keeping the job? Only your gut can answer that one.

While, facing a layoff is no fun there are some positives.

A layoff qualifies you for unemployment benefits if you sign up and look for a new job through your state unemployment agency. Human resource administrators can explain how this works, what the job search requirements are and how many weeks you might be eligible for unemployment benefits.

Secondly, you can buy health insurance coverage through your former employer’s insurance plan for at least 18 months, thanks to COBRA, a federal law passed by Congress in 1985. Some employers let you stay with the company health insurance plan until you reach 65.

In addition, some employers might offer “bridging money” to financially bridge the period between early retirement and when you are eligible for Social Security benefits.

But who wants to take reduced Social Security benefits at 62 when full benefits only kick in at age 66 or 67?

The biggest negative of taking an early retirement offer is that you no longer will have the job and its income to support saving through the company-sponsored 401(k) program. If there’s a pension, it will likely be smaller than if you had kept the job longer. That means less to live on in real retirement.

Whatever you do, give yourself plenty of time to evaluate the offer!!

Reinventing yourself

Some people reinvent themselves after an early buyout by starting their own business, by finding another job or by working part-time. How long you have to figure that out depends on how much you employer offers in severance pay.

Severance usually consists of your current salary plus addition money for the number of years you’ve worked for the company.

Keep in mind that experts say that the amount of money you need to live on in retirement should by about eight times your income. So if your household income is $100,000 a year, you will likely need at least $1 million in retirement savings to enjoy a modest retirement.

Meanwhile, do NOT make early withdrawals from your 401(k) retirement savings plan but instead move it into a self-directed Individual Retirement Account with an online brokerage or a trusted local firm. Money withdrawn from a company-sponsored 401(k) or IRA is subject to a 10 percent “premature distribution” penalty before age 59 ½.

Plus, you will pay federal income tax on the withdrawal. And you won’t be growing that money for your real retirement.

Those who have been through an early retirement buyout will tell you that it is a stressful time with lots of ups and downs. It feels bad to be asked to leave a place where you like the job, like the contribution you make and enjoy the people you work with.

Financial planner Jim Blankenship writing in US News &World Report warns that some companies “make an early retirement package seem more attractive than it really is.” He said that you may want to consult an independent professional adviser who “will work for your best interests” in negotiating a buyout.

Saying yes to a buyout may mean retraining for something new or doing something else that you’ve felt passionate about. But whatever, it will be a roller coaster ride.

Saturday, April 22, 2017

Teaching grandchildren (and their parents) about money

"Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like." -- Will Smith, actor and producer, songwriter and rapper, (1968 -   )

By Julia Anderson
In our era of instant gratification and in a financial world where a regular bank savings account pays next to no interest, how do you help your grand kids learn about using money carefully, investing and saving for the long-haul?

The good news is that there are a lot of great resources on the Internet offering good step-by-step advice. These tips will help you help your grand kids get a handle on saving and investing, on budgeting, and spending wisely.

Here’s a run-down of six helpful Web sites:

At, writer Laura Shin has put together a list of five money lessons to teach kids according to their age. She describes each lesson to be taught, then follows with several exercises to help with the learning.

For example: The lesson for a three to five-year-old is “You may have to wait to buy something you want.” She provides three ways to help a young child learn about having a savings goal and a spending goal for small purchases.

Ages six to 10: You need to make choices about how to spend money.
Ages 11 to 13: The sooner you save, the faster your money can grow from compound interest.
Ages 14 to 18: When comparing colleges, be sure to consider how much each school would cost. 
The lesson for an 18-year-old? “Use a credit card only if you can pay the balance off each month.”

Web site: - The power of compounding

The Web page at, explains in dramatic fashion plus “the power of compounding.”

Here, the unnamed author, offers an exercise to teach the power of compounding. Other money gurus use similar examples.

Ask your grandchild, “Would you rather have $1 million now, or take a penny and double the amount every day for 30 days?”

Most people (certainly most kids) would take the $1 million. But that would be the poorer choice. The visual chart on the Web page makes it clear how doubling your penny every day for 30 days would result in the tidy sum of $5,368,709.12!

Included with this exercise are three tips: The sooner you start saving and investing, the better; It is good to make saving a habit with regular investments, and that patience is a virtue. It takes time to build the nest egg “by investing wisely and leaving the money alone for the long term.”

Web site:

The American Institute of Certified Public Accountants has taken on the mission of improving the financial literacy of all Americans. is geared toward those aged 25 to 34 to help them take control of their finances.

Here are the resources for young adults (your kids or grandkids) to reduce debt, plan ahead, boost a credit score, save to buy a house or a car. Mr. Pig, BenjaminBankes, will send along savings tips, if you sign up for free email.

There is a companion Web site,, with more money tips including a page for Tweens & Teens and their parents.

Dave Ramsey is a well-known money guru with a lot of books and a radio show. On this page, he also focuses on the miracle of compound interest.

He uses the comparison of two young adults. One starts investing at age 19, the other doesn’t get started until age 27.

The 19-year-old puts $2,000 into an investment account for eight years and leaves it there until he’s 65. It earns an average of 12 percent a year, which is what the S&P 500 has historically done over the past 50 years. He ends up with more than $2.2 million.

His friend who started later at age 27 and puts $2,000 in from age 27 to age 65. He ends up with only $1.5 million. So starting early and leaving the money there to grow is a huge deal.

I don’t know anything about Chicago-based Windgate Wealth, but I do like their six ways to teach your kids about saving money. In a nutshell, here are the tips:

Start with a piggy bank.

Open a bank account.

Use savings jars to save for short- and long-term goals.

Create a timeline to visually help kids see their savings progress.

Lead by example. When shopping, for instance, engage your children in the buying decisions. Explain the choices you make.

Start a conversation about money and the importance of saving.

General advice: Parents and grandparents an make money and saving money fun and accessible. Discuss the difference between needs and wants and help them visualize their financial future.

This article summarizes a study about millennials and money, which mentions that one-third of this age group is uncomfortable talking about money with their parents. (See FidelityInvestments Millennial Money Study)

Included are eight tips for how to have the “money” conversation.

1. Keep your advice brief

2. Share your experiences.

3. Keep your expectations in check.

4. Set rules when lending money.

5 Discuss investing strategies.

6. Set a good example -- and let it show.

7 Don't avoid the inheritance topic.

8 Discuss your finances with your kids at least once a year.

Maybe it is no surprise that nearly half (47 percent) of young adults have received financial assistance from their parents since leaving home to pay for such basic things as cell phone bills, car insurance and even to buy groceries.

Twenty-five percent said that a one point they had moved back home for financial reasons.

Friday, March 31, 2017

Smart Money: My new gig with Joe Smith on TVCTV!

"Anything you need, you can get on YouTube. It's wacky." -- Lorraine Toussaint, actress. (1960 -     ).

Want to know more about how and when to claim Social Security benefits? Are you worried that the Social Security Administration will run out of money?

Are you into estate planning and need to hold a Family Money Summit to explain to your children what you’re going to do with your business and/or your money?

Are you in need of a financial planner but don’t know the questions to ask to hire one?

How about the basics of retirement planning in five steps?

These are some of the topics we are covering in a new series of taped shows hosted at TVCTV public access channel in Beaverton, Ore. The good news is that the shows also are available on YouTube.

I’ve teamed up with Portland television host, Joe Smith, to talk about all things money-related. We discuss elder financial abuse and how to prevent it.

We delve into one of my most popular topics here at, How to Get Married after 60. And we go through my Five Basic Steps to Retirement Planning.

My big passion in semi-retirement is to help people, particularly women, plan and save for retirement. Mary Weisensee at TVCTV – the public access community programming network in Washington County, Ore. -- liked my Smart Money column in the Portland Tribune and asked me to talk about money issues in a series of taped shows.

The first shows being aired on TVCTV channels focus on Social Security. Here's an OregonLive advance news story explaining the show, click here.

In three Social Security segments, Joe Smith and I interview Alan Edwards, the region’s Social Security guru.

We cover what everyone should know about Social Security in Social Security 101, How women can best claim Social Security benefits and we tackle Social Security Myths.

The good news is that Social Security is not going to run out of money until about 2035 and then would just reduce benefits to keep going. That’s of course unless Congress tweaks the benefit rules to return the program to solvency.

Click here for a link to the "My Account" Social Security Web site.

The shows, called Smart Money (like my column in the Portland Tribune), will air on public access channel 22 in Washington County, but are also being made available on CVTV in Clark County, Wash. and will be distributed to other public access operations in the region. And we are on YouTube!!!

Other Smart Money shows will come along soon. Joe and I are taping shows on new topics. The list is really endless.

Bottom line on Social Security: People should set up a personal account at Then check up on their employment and wage information. Then start planning for how and when they might want to claim Social Security benefits.

It is really a big deal and a big part of retirement planning. It’s best to start now.
Here's my post at sixtyandsingle on Social Security. click here.

Hey, I'm on YouTube!!!

Sunday, February 26, 2017

Women earn less than men. Why it is a big problem and what we can do about it

"If fighting for equal pay and paid family leave is playing the gender card, then deal me in! -- Hillary Clinton.

A recent headline in my hometown newspaper, said it all. “Public Pay is a Man’s World: Men far outnumber women in 100 highest-paid public jobs…”

The page one in-depth report looked at top jobs across a wide spectrum of local public employers…cities, school districts, the community college and county government.

In all cases, the top manager, (all men) earned tens of thousands of dollars more a year than the highest paid female manager in the same organization.

For example: The county medical examiner (coroner in some counties) was earning $221,964 a year. That’s a lot but he’s a physician and deserves the pay for a demanding on-call job. However, the associate medical examiner, a second-in-command position held by a woman who also is a doctor, earned just $165,264.
Is it OK that she earns 25 percent less than her boss for doing pretty much the same job?

It is NOT news that women generally earn less money than men in the work place.

Nationally, women working full-time (at least 35 hours a week) earned $726 a week, according to the latest (2015) Bureau of Labor Statistics report. The median earnings for men working full-time was $895. This 81.1 percent -- women vs men -- gap means women have less opportunity to save for retirement. And they collect less in Social Security benefits in retirement because of their weaker earnings record.

In Oregon, women working full-time (at least 35 hours) earned $734 a week, according to the BLS. That’s 83 percent of the $884 Oregon men earned working full-time and slightly better than the national figures.
In Washington, the earnings gap was wider--- $797 for women, $1,025 for men.

In the nation’s tech industry, the earnings gap between men and women is wider with the greatest disparity early in their careers. Those women 25 and younger, earn 29 percent less than men the same age. According to Fortune magazine, a job survey had the average female software programmer earning 30 percent less than her male counterpart at any age.

The discouraging part is that 30 years ago, women represented 37 percent of computer science college graduates. That compared with just 14 percent in 2013.

Every year when the earnings gap numbers are updated, there is a media thresh about what it means and why not much has changed over the past 17 years.   In 2016, men earned annual median pay of $51,212 while women earned median pay of $40,742.

From my vantage point of 30 years of full-time work experience covering business and economic news, here’s my take.

Jobs and the hours

This is not so much about wage discrimination as the kinds of jobs women tend to fill and accept as compared with where and what men take on for work. (Example: A step-granddaughter wants to be a dog walker after high school. My grandson wants to be an aeronautics engineer and fly a plane. I am guessing that their IQs are about the same.)

Women generally end up more often working in industries that pay less – health care, retailing, marketing, business and finance, human resources and in education. Men, on the other hand, tend to work in higher paying jobs in construction, transportation, manufacturing and yes, management. But why is that?

Many of the jobs in these higher paying industries could be done just as well by women as by men. And while some discrimination certainly still exists today, workplace labor laws make it less likely.

But this doesn’t start with college or that first job. It starts in high school. Studies show that kids typically make career choices before they graduate.

In selecting a career direction, young men make wages a No. 1 priority while young women tend to focus on “flexibility and security” rather than pay.

Young women do not factor in what their career choice will mean in terms of household income, long-term savings and even retirement planning.

Of course other factors undermine the ability of women to earn as much as men in any given job. Dropping out of the job market to have and to raise children may mean re-entering at a lower pay rate. Women often choose jobs at less pay that have a better work-life balance. They may take a lower-paying job that offers more security, less risk.

On the other hand, employers may see them as less reliable because they have kids and pay them less. Argh.
As well, women who work in retailing, business services and hospitality may be more vulnerable to layoffs and downsizing.

Women may choose to not take on higher-paying and more influential positions in an organization. But, according to a Wharton Business School study, they also may be passed over because of “unconscious employer stereotypes.”
For me this is a big long-term economic problem.

Women tend to live longer than men (83 vs 80) and spend more time living financially on their own in retirement. Half of women, age 65 and older, are single and on their own. Twenty-five percent of those women are living at or below the poverty line.

Women tend to earn less during their working lives for all the reasons mentioned above.
That in turn means a financially limited retirement. How many more 90-year-old women with just Social Security income can we cram into our assisted-living centers?

Closing the earnings gap

So what’s to be done? How do we close the earnings gap?

Obviously, high school career coaches could do a better job of encouraging young women to a choose career path for which they are passionate, but also pays well. Sometimes I think talking about money and making a good living, is considered crass and makes us (women) look greedy and too ambitious.

Meanwhile, jobs of the future require more technical skills. Girls must embrace math and science and consider jobs in the higher-paying tech field and in engineering, in medicine.

At least one study, suggested women just need to work more hours. According to The Atlantic magazine, 26 percent of men who work full-time worked more than 41 hours a week, while only 15 percent of women worked those hours. More hours means more income, more opportunity to save and get ahead.

Why not give women free childcare that would allow them to be moms and have a job? I know that's expensive. Should employers be encouraged to do salary audits to make sure people are being paid the same for the same work with the same job title?

And finally, it turns out that women may not that great at negotiating a job or a pay raise.

I am guessing that the women mentioned in the local newspaper report had little idea that they were earning so much less than the men they work with. I am wondering how many of them have asked for a raise?  (Sadly, a recent study said women do ask for raises but more often are turned down.)

Shouldn’t we teach better negotiating skills to young women and make sure they know that they are worth when it comes to landing and keeping a job?

As grandmothers, isn't part of our job to encourage our granddaughters to aim high, take on math and science studies and go for the gold...or at least for a higher paying job.
the Fed's Janet Yellen on workplace discrimination, click here.
"Still missing: Female Business leaders," CNNMoney, click here.
"Gender Equality by Design," click here.
"The simple truth about the pay gap," AAUW, click here.

Wednesday, January 18, 2017

Succession planning: How to hand off your business to your kids (or somebody else)

"The brave may not live forever, but the cautious do not live at all.”Richard Branson, international business entrepreneur who is selling his Virgin America airlines to Alaska Airlines.

In the region where I live near Portland, Oregon, many small businesses are owned and operated by women.
In fact, Portland is known generally as a town where smaller, family-owned businesses have thrived, unlike its coastal neighbors to the north and south -- Seattle and San Francisco -- where the behemoths of industry dominate the landscape.

Women-owned businesses that I know about have successfully operated in the health care industry, are in retailing and marketing, hospitality-travel and real estate. In addition, women I know have worked side-by-side with a spouse to build businesses in such diverse industries as manufacturing, construction, automotive supply and trucking.

Many of these successful enterprises were launched by people born after World War II who have put their heart and soul into their business over the past 25 or 30 years. But what happens when these Baby Boomers, now in their 60s and early 70s, begin to age into retirement? Should they sell out or let the kids carry on?

It is never too soon to start talking about succession planning with your kids or with younger employees who might want to take on operations when it is time for you to step-away.

“Those that work on a plan will have a much better chance of a hand-off,”  Ted Austin, senior vice president with the Private Client Reserve of U.S. Bank in Portland, told me.

According to industry statistics, 25 percent of family business transfers fail because of poor succession planning, he said.

“The biggest obstacle is around communication," he said. "Some people build a business with the idea someone will buy it. For others, the family name is on the door with the expectation the operation will stay in the family. One way or another you have got to talk about it.”

For business succession planning to succeed, Austin recommends these steps:
  •  Start talking sooner than later within the family about how to handle the legacy of your hard work.
  •  Find out if the next generation is interested in continuing the business or if you should begin looking into a buyout by a group of employees or an outside investor.
  • Set up a plan for how the transition will work. What’s the timeline? How will responsibilities be shifted? Will dad and mom still come to work every day even though they may no longer be in charge? How will employees be kept in the loop?
Austin at U.S. Bank suggests that a good exit plan may spin out over a five- or ten-year period after a lot of questions have been answered.  For instance, will it be a buyout by the children over time or will ownership shares be gifted to the next generation?
“The more clarity in the plan related to legal governance of the business going forward means less stress during family gatherings at Christmas or while on a family vacation in Bend. Austin cautions that mistrust or misunderstanding can put a damper on family events.

Building an advisory team

Good succession planning may mean putting together a team of professional advisers – an attorney to write out a legal agreement, a financial planner to help with estate and retirement planning and a bank trust officer who can advise on tax strategies, creditor protection and asset management.

“Depending on the complexity, this professional help will cost money,” Austin said. “Make sure the family understands that cost.”

Succession planning evolves with the business but doing it sooner than later can make the difference between a successful transition and disaster.  Advisers at SCORE, a national small business mentoring network, say that business owners should not shy away from succession planning because it looks too far in to the future.

“Devising a formal plan that outlines who will own and operate the company, once you are not in the day-to-day role, is a critical path decision that has a direct impact on long-term business profitability,” they say.

Before embarking on an exit strategy, business owners should seek legal advice and possibly a “business evaluation expert” who can help make sure every transition option has been, considered, the Small Business Administration recommends.

“Without naming names, if you drive down Portland’s Broadway you will see a lot of families that have built wealth, generation by generation through a growing family business,” Austin said. “Where it has gone extremely well, family members have been involved in the business. They have been able to look under the hood so that when it comes time they will be as ready as they can be. Or they decide this isn’t something they want to do, so everyone can plan for that change.”

Will the business founders be able to pass on the company to his or her next generation or will a new owner step in with a buyout, ready to take the reins? That business succession conversation must launched by the business owner with her family.

Why not make it happen this year!