It was the Best of Times, It was the Worst of Times…

It was the best of times, it was the worst of times…

A Tale of Two Cities
Charles Dickens

Unfortunately, for many Americans this quote from Charles Dickens all too well describes their feelings as they approach or begin retirement. Retirement is a time to pursue new and current hobbies, spend more time with family and for many – worry about how they are going to pay for it all.

57% of workers in the United States say they have less than $25,000 in savings and investments (excluding their home and defined benefit plans).1  Not surprisingly, a recent survey found that 85% of financial professionals say that their clients’ top retirement worry is outliving their savings.2 The reasons are not complicated when you see the top financial blunder is that clients’ live beyond their means, according to financial advisors.2013Q2-wbi-advisor-full

Although not complicated, the solutions are not necessarily easy or pleasant. For example, we cannot turn back the hands of time and start saving earlier for retirement. Although someone’s standard of living may be manageable in the long run, it is often difficult to make significant short-term adjustments.

Employers often find themselves in the middle of this issue as sponsors of retirement plans. Over 11,000 companies are helping their employees save more for retirement with employee stock ownership plans (ESOPs). An ESOP is a qualified defined contribution retirement plan that is invested primarily in the common stock of the sponsoring company. The ESOP is typically put in place to assist with either business succession or to allow the business owner to diversify their portfolio.

Through the ESOP, employees earn indirect ownership through their employment that it typically converted into cash at retirement. The ESOP can be a significant part of employees’ retirement assets. According to Corey Rosen, the cofounder and senior staff member of the National Center for Employee Ownership (NCEO), S Corporation ESOP balances were 3 to 5 times higher on average than 401(k) plans.

The ESOP assists the business owner with their succession or diversification needs while building retirement savings for their employees. This reminds me of another line from the Dicken’s classic:

It is a far, far better thing that I do, than I have ever done…


In addition to blogging here, I also tweet regularly about topics of interest to ESOPs. Click to follow me on Twitter –  @jlripperger.

2013 Retirement Confidence Survey, Employee Benefit Research Institute.
2 Principal Financial Well-Being IndexSM: Advisors, (Q2 2013).

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While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

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