Mortgage Professionals and the Disturbing Necessity of Retirement Planning



When Jim Paolino co-founded mortgage technology company Lodestar Software Solutions in an apartment in New York in 2013, the 26-year-old tried to fund part of it from his retirement account with a previous employer.

Paolino has made a choice that many small business owners and independent contractors face, risking their future financial security for their current needs.

Even before the record number of mortgages in 2020, industry workers were busier than ever, and many loan officers tended to neglect their personal financial planning, including retirement. Some even expect the value of their business to become their retirement plan.

A FinanceBuzz poll of 1,200 U.S. adults in December 2019 found that 35% of them have no retirement savings at all, and that proportion is likely in the mortgage industry.

In the case of Aaron Davis, the title agency he currently owns was founded by his mother in 1984 under the Hillsborough Title in the Tampa Bay region of Florida. She planned to sell it to him someday, but the mortgage market crash in 2008 accelerated those plans.

“The economy was crumbling, everything around us was crumbling, and from a real estate planning perspective, it made sense to hand this asset over to me at the time because it was worth $ 0,” Davis said. “She planned to sell it to me at some point to retire, but [in 2008] there was so much responsibility and chaos in the marketplace that I bought it from her at the time; it was not her plan, it was imposed on her. “

And therein lies the danger of someone relying on their business – or even selling their client list – to fund their retirement. Davis said his mother remains part of the business; She was in her early 50s when she sold the company and decided to continue working in various positions, including the title exam. Now 64 years old, she decides to continue to be involved in the business, mainly as a consultant, helping to resolve difficult title issues.

In addition, fragmentation among mortgage originators has led to a situation where many small companies which offer limited benefit packages that often contain few retirement savings plans, let alone employer contributions to them. also in a number of statesmortgage officers are allowed to work as independent contractors if they are responsible for own benefits and taxes.

According to Skeff Bisset, managing partner of Bisset Financial Group, while many have put in a lot of effort to grow their businesses, they have not spent as much on their own future, especially retirement. He works mainly with people in the real estate business.

Pension funding is something that tends to be pushed back from self-employed individuals. “If you click [a retirement plan] too far you are playing a very, very difficult game of catch-up with age, ”he said.

Its goal is to make mortgage and real estate professionals think about their future, because no one else is looking after them.

“There are all kinds of professionals among doctors, lawyers, accountants and individuals who work for large corporations,” Bisset said. “But nobody really does anything or focuses on the real estate market.”

Especially now that mortgage makers have focused on their customers and let their own financial planning fade into the background.

“I think this is true for any profession,” Bisset said. “You are so focused on what you are doing, and very, very often it is done for your own well-being or for your own well-being.”

And that focus can cost them because they might miss out on opportunities that could better prepare them for the future.

When Davis first received the Hillsborough title from his mother, it was a struggle to survive for several years. But that eventually changed and Davis is now CEO of the Florida agency network of which Hillsborough Title is a part. FAN has about 30 offices with more than 220 employees. But Davis, who has a background in financial planning, knows that the current hot state of the real estate and mortgage business cannot last forever.

“Expansion and contraction is just a reaction to the market,” Davis said. “You cannot count on the economy that we are facing right now. This is not to say that this will happen in the next five years. Hope it happens and it would be great. “

For his own retirement plan, Davis has invested in a portfolio of single-family rental homes and commercial buildings that house various FAN companies.

Instead of paying rent to a third party, why not pay rent to yourself and buy this commercial asset, and in 10-15 years you will have a free and clean piece of real estate that will end up when you are about to retire. , you sell it, and it’s part of the puzzle, ”Davis said.

At Lodestar, which is now across the Hudson River in Hoboken, New Jersey, Paolino is developing a retirement plan for the company’s employees, and he plans to contribute as well. For him, this will be a complete restart of pension savings, abandoning previous plans.

Like so many of the millennial generation, he is very insecure if the social security program will still be in place when he is ready to retire. “Therefore, I think that your personal retirement planning should be independent,” said Paolino.

He noted the advantage of a tax deferred pension plan, but also noted that if the business owner does not initially make money, there is little benefit from this status.

Overall, as a small business owner, retirement can be a problem in the end, Paolino continued. Especially in an industry where business licensing is required, such as mortgages.

“So now you have this additional complication, although I’m sure I can retire from my retirement account, but now I have this obligation to sit with and how do I get it off? said Paolino. “So I think that when you run a small business, there are a lot of big issues that can revolve around how to retire.”


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