Entrepreneurs are known as risk takers — and that may be extending to their retirement. A 2014 Small Business Retirement Readiness Study [PDF] sponsored by The Guardian Life Insurance Company of America and conducted by the Harris Poll Panel, found that 35 percent of small-business owners (SBOs) plan to fund their golden years by selling their business. However, half of those do not have potential buyers lined up. Without a clear plan (which may take time to put in place), small-business owners may find it difficult to realize the full value of their companies and take the steps necessary to sell.
“Overwhelmingly, the SBOs surveyed are risk tolerant and feel that having their own business is the best way to create the wealth they want, now and at retirement,” says Rachel Barrow, Director, Guardian Retirement Solutions, Annuity & Value Add Marketing. The poll surveyed more than 1,400 small-business owners age 25 to 74 with business revenues of at least $500,000 and household income of $75,000 or more.
Entrepreneurs are Bullish on Business
Compared to 2013, small-business owners have an optimistic outlook. Survey respondents reported increases in annual revenue and employment of 30 percent or more, on average. One-third said they plan to expand their businesses within the next two years. Forty percent feel that running a small business gives them more time for their families. More than a third said they started their business specifically to provide retirement income, an increase from 25 percent who said the same thing in 2011.
Retirement Date: Never
Many survey respondents felt more optimistic about their retirement, too, with 56 percent saying they have concrete ideas of what their life will look like once they are no longer running their businesses (up from 50 percent in 2011). “Small-business owners’ perception of retirement readiness is slightly different than the everyday individual,” says Barrow. “SBOs tend to feel more confident.”
However, some business owners are not planning for retirement because they simply don’t plan to retire. “More than one-third of the SBOs polled plan to alternate between working and retirement in their golden years. Only 11 percent stated they “would never work for pay again,” adds Barrow. “Continuing to work in some capacity does seem like it may be a part of life for some small-business owners. As SBOs near retirement they need to figure out if they need income to meet increased costs associated with health care and how that relates to transitioning some or all of their business to a trusted source to lead the company.”
Young Entrepreneurs and Women Look Ahead
The recent economic downturn is reflected in the survey responses of business owners under 34, who were much more likely than their older peers to have experienced periods of unemployment that made a dent in their retirement savings plans. “Hands down they need to start saving as early as possible — the power of compounding assets would be on their side along with time,” says Barrow. “Depending on the size of their business it may wise for the small-business owners to start with an IRA and then transition to a different type of qualified plan that can also work for their employees.
On the other hand, fewer women entrepreneurs report feeling confident about their preparations for retirement than male business owners (45 percent compared with 55 percent). Only 14 percent of women business owners surveyed said they feel “very well prepared” to retire. “Based on the findings from [our] research, over one-third of women small-business owners noted that time is one of their greatest retirement planning obstacles,” Barrow says.
But there is a bright side: “We also found that one of the greatest retirement planning advantages of women is their openness to information and advice.”
Next Steps: Making a Plan
Barrow notes that “a major pitfall centers around inadequate planning for the future of their business and the ‘what ifs’ in life.” You may want to join the 48 percent of survey respondents who plan to speak with a financial adviser or the 47 percent who will educate themselves about retirement by reading books and articles on the topic. However you choose to approach it, this could be a good time to add retirement to your financial goals. Planning for the future may not only help reduce your current tax burden (particularly if you invest in tax-deferred accounts), but it could also allow you to rest easier, knowing you have a road map to a secure retirement.