When it comes to retirement, an increasing number of aging small business owners are deciding to keep punching the clock longer into their golden years than they originally planned. 

With the 2008 Great Recession adversely affecting the retirement savings of many hopeful retirees, many who run their own businesses say they don’t have sufficient funds to allow them to live comfortably.  

“I am seeing more and more business owners postponing retirement longer than I’ve ever seen in the past 35 years,” said Tom Foster, national spokesperson for the retirement plans group and vice president of The Hartford financial services company. 

“A lot of it has to do with a lot of [economic] doom and gloom we read about,” he continued, noting that people are much more focused on retirement now than they were 10 years ago, given the current economic uncertainty and unknown fate of Social Security, taxes and other financial issues. “A lot of them are scared.” 

The Employee Benefit Research Institute (EBRI) released figures in August showing that overall, workers 55 and older are staying in the workforce longer because of their need for employment-based health insurance and for more time to accumulate assets in defined contribution (401(k)-type) plans.  

For small business owners specifically, The Guardian Life Small Business Research Institute found that although many expect to live 20 years into retirement, less than half feel “very” or “fairly” well prepared for life after work. Plus, 4 in 10 small business owners never plan to retire entirely: For them, “retirement” will mean going back and forth between full and part-time work, starting a new business or working full or part-time in another area.

The recent, persistently weak economy has caused some small business owners to throw in the towel; the U.S. has fewer businesses now than it did before the before the downturn. 

“Finding that 4 in 10 small business owners never plan to retire entirely – that was a surprise,” said Mark Wolf, director for The Guardian Life Small Business Research Institute, noting that previous research his institute conducted indicates that most small business owners are going to “be carried out of the business with their boots on; go to work in the morning, go to the grave in the afternoon.” 

The Guardian study of small business owners also found:

-While the average intended age for retirement is 65, nearly one-third plan to either retire older than 70 or to never retire. 

-Two-thirds do not have a written retirement plan, and most of them are not sure if they will create one.

-More than 8 in 10 have started to save for retirement, but only half have consulted a financial advisor.

-Most will rely on their investments, Social Security and individual retirement accounts (IRAs).

-The minority will have pensions, real estate and the sale of their business to fall back on.

The main reason many who can retire won’t? Money.

Six in 10 small business owners interviewed by The Guardian said it’s very important to have enough money to retire, pay their bills, and not outlive the money. And with experts estimating that Americans will need 70-90% of their pre-retirement income to maintain their current standard of living when they stop working, who can blame them?

Only 49% said they had spoken to an advisor, while another 47% read books or articles on saving for retirement. Many small business owners set aside savings in stocks, personal savings, and/or rely on putting money away in a savings or similar account, using the sale of their business, real estate, pensions, Social Security, and other money streams to finance their retirement. But financial experts warn that these methods can be unsafe given possibilities such as it being hard to liquidate some of those assets, an unaccounted for drop in property values, costs of goods increasing, or loss of a consumer base.

“There are activities they’re doing that they believe are providing a foundation for retirement on one level, but when you ask them how well prepared they are, there’s this general sense of unease,” Wolf said.  

There are several options small business owners have when it comes to retirement investing:

 SEP Account – A Simplified Employee Pension (SEP) plan is a common retirement savings account among small business owners because of its simplicity. However, it lacks the flexibility of a defined contribution plan.  

Traditional or Roth IRA – Although you don’t need to be a business owner to open one of these accounts, many small business owners are attracted to their benefits. Participation in a Roth IRA is limited to individuals who earn no more than $107,000 annually or couples earning less than $169,000.   

Individual 401(k) - Small business owners with no employees may be able to contribute more to a 401(k) than with other retirement plans.  

Roth 401(k) – Allows business owners and others to save after-tax dollars but then accumulate earnings and generate retirement income free of taxes, regardless of income.  

But for older workers who are thinking of retiring in the next 10 years or so who lack a good start on their retirement savings, Foster noted some options that can help them save more money faster:

An age-weighted plan – This plan allows you to take advantage of the increased age of the employer and not contribute as much to the employee. It factors in the time value of money in that the younger employees have more time for their investments to grow than older workers. Since older employees have shorter time horizons to save for retirement and generally have higher compensation than younger employees, age-weighted plans allow larger contributions. 

New comparability plan – These also favor older, more highly-compensated employees - in most cases, the business owners. Contributions are still converted to a benefit at retirement, but you can provide different benefits to different groups.  

Cash balance plan – A defined benefit plan that is similar to a 401(k) in that it provides an account balance and the ability to roll over into other qualified plans, but cash balance contributions can be much higher and more heavily weighted toward key personnel, so the business owners can accelerate their retirement savings.  

There are several tips retirement experts have for small business owners and their retirement. They include: 

  • Start talking about and strategizing your plan early. “When they’re usually in that window with about 10 years to retire, then they realize now they have to start seriously considering their retirement plan,” said Ernie Guerriero, head of qualified plan marketing for the Business Resource Center for Advanced Markets at Guardian. “In many cases, it’s either too costly to do, or they must delay it until they can sell their business at an attractive price in the future, which we’re seeing in this economy, it’s very hard to do that – to get top dollar from a willing buyer out there. So the business owner is forced to continue to work.” 
  • Don’t necessarily just go for the cheapest plan because it’s hard to determine the differences between all available options. Worse still: doing nothing. “There’s simply just a lot of noise in the marketplace … human nature is [to] take the path of least resistance and when things appear to be too complicated, they simply do nothing,” Guerriero said.  
  • It goes without saying, when it comes to financing your future, you don’t want to make a mistake. Get a financial planner who actually specializes in retirement to help. “You’re not going to go to a cardiac surgeon for a toothache,” Foster said. 
  • Don’t wait until tomorrow to invest what you can today. With tax laws and regulations in flux, the future of Social Security unknown, and talk of the government looking into reducing contribution limits for retirement accounts, Foster said now’s the time to invest. “There’s a possibility some of the opportunities available now might not be available in the future,” he added. 
  • Do a “retirement needs” calculation and gap analysis to see how much you need to live the way you want when you retire. Include all of your assets and holdings – including life insurance, annuities, real estate, etc… - and figure out what percentage of your current income you will need to live on later. Foster said small business owners have to ask themselves: “’What’s the gap? What am I going to do to make up the deficiencies’ that a vast majority of people see when they do that analysis,” he added. “Most business owners are not doing that.” 
  • Be sure to coordinate your retirement plan with your overall estate plan and will. Foster has seen a lot of “horror stories” of people not coordinating which beneficiaries will receive which assets, which creates conflicts upon one’s death.