When Jim Paolino co-founded mortgage technology company Lodestar Software Solutions in a New York City apartment in 2013, the then-26-year-old sought to fund part of it with his retirement account from a previous employer.
Paolino made a choice that plenty of small business owners and independent contractors face — risking their future financial security for present needs.
Even before 2020's record mortgage originations kept industry workers busier than ever, many loan officers tended to neglect their own personal financial planning, including for their retirement. Some even count on their business' value to be their retirement plan.
A FinanceBuzz survey of 1,200 U.S. adults in December 2019 found that 35% of them had no retirement savings at all, a share that likely translates to the mortgage industry.
In Aaron Davis' case, the title agency he currently owns was founded by his mother in 1984 as Hillsborough Title in Florida's Tampa Bay region. She planned to sell it to him someday, but the mortgage market collapse in 2008 accelerated those plans.
"The economy was crashing, everything was falling down around us and from an estate planning standpoint, it made sense to transfer the asset to me at that time because it was worth $0," Davis said. "She was planning on selling it to me at some point so that she could retire, but [in 2008] there was just so much liability and the chaos of the market that I bought it from her at that time; that was not her plan, this was forced upon her."
And that is the danger of someone relying on their business — or even a sale of their client list — to fund their retirement. Davis said his mother remains a part of the business; she was in her early 50s when she sold the company and elected to continue working in various capacities, including title examination. Now 64, she chooses to stay involved in the business, primarily in a consulting role helping with complex title issues.
In addition, the fragmentation among mortgage originators has created a situation where there are
While many have put much effort into developing their business, they have not spent the same effort on their own future, particularly their retirement, said Skeff Bisset, the managing partner of Bisset Financial Group. He works primarily with people in the real estate field.
Retirement funding is something that tends to get pushed aside for those that are self-employed. "If you push [a retirement plan] off too far you're playing a very, very difficult game of catch-up as you age," he said.
His goal is to get mortgage and real estate professionals thinking about their future, because there's no one else looking out for them.
"There's all kinds of professionals out there for doctors and attorneys and accountants and individuals that work for major corporations," said Bisset. "But there's no one really tailoring anything and focusing on the real estate market."
Especially now, when mortgage originators have been focusing on their clients and have let their own fiscal planning slip to the wayside.
"I think that is true with any profession," said Bisset. "You get so focused on whatever it is you do and very, very frequently it is at the sacrifice or at the behest of your own well-being."
And that focus could cost them because they could be missing opportunities that might better prepare them for the future.
When Davis first took over Hillsborough Title from his mother, it was a struggle for survival for several years. But eventually, things turned around and Davis is now the CEO of the Florida Agency Network, which Hillsborough Title is a part of. FAN has approximately 30 offices with over 220 employees. But Davis, who has a background as a financial planner, knows the current hot state of the real estate and mortgage business can't last forever.
"Expansion and contraction are just a reaction to the market," Davis said. "You can't bank on this economy that we're experiencing right now. You can't say this is going to happen for the next five years. Hopefully it does, and that would be wonderful."
For his own retirement plan, Davis has invested in a portfolio of single-family rental properties and the commercial buildings where the various FAN company offices are located.
Instead of paying rent to a third party, "why not pay rent to yourself and buy that commercial asset, and after a 10 to 15 year period, you've got a free and clear piece of real estate that ultimately when you look to retire, you sell that and there's a piece of the puzzle," Davis said.
At Lodestar, now located across the Hudson River in Hoboken, N.J., Paolino is now bringing out a retirement plan for the company's staff, and he plans to contribute as well. This will be a total restart of retirement savings for him, having closed out his previous plans.
Like many other members of the millennial generation, he is very uncertain that the Social Security program will still be in existence at the time he is ready to retire. "So I think your own personal retirement planning is something that has to be self-reliant," Paolino said.
He did note the tax deferred perk of having a retirement plan, but also pointed out that if a business owner wasn't making money in the first place, that status is of little benefit.
In general, being a small business owner, eventually transitioning into retirement can be an issue itself, Paolino continued. Especially in an industry that requires business licensing like mortgage.
"So now you have that added complication of even though sure I could retire on my retirement account, but now I have this liability that I will be sitting with and how do I transition that off?" Paolino said. "So I think when you're a small business person, there are a lot of serious concerns that can revolve around how to retire."
