Small Business Owners and Retirement Planning: Turning Hope into Reality

When we polled small business owners about their plans for retirement, one thing became clear: hope is a huge factor. When asked to complete the phrase “When I retire, I will…” popular answers ranged from “hope I have enough money” to “hopefully be financially secure” to “hopefully have a nest egg.” While hope is a positive and motivating emotion, it’s not for nothing that George Washington Carver once said, “Where there is no vision, there is no hope.”

Having a vision for retirement is critical to small business owners. Today’s small business owners feel confident about the present and future, and report positive growth, especially when compared with figures from 2011. Roughly half of the small business owner (SBO) respondents to the 2014 Guardian Small Business Owners Retirement Readiness Study expect their business to grow in the next 12 months. Additionally, SBOs generally feel more positive about being retirement ready, and an increasing number report they feel they can afford to retire. But in fact, just over half (52%) of SBOs report they are “Very/Fairly Well” prepared for retirement.

And that vision of retirement? In general, SBOs plan to retire at age 65 and live about 22.5 years in retirement. Many envision retirement, at least initially, to include some work! Some plan to alternate periods of work and leisure (38%), while others plan on working part time (13%), full time (13%), or volunteering along with some paid work (12%). A mere 11% envision never working for pay again.

Over three-quarters of small business owners have a comprehensive plan for retirement and two-thirds believe that adherence to a well-defined financial plan has positively impacted their ability to save and their retirement savings. Many use an advisor or other financial professional to help them with their company and personal retirement planning needs. However, a number of SBOs are either open to or in need of more advice about their retirement planning. When asked what they need to help them prepare for retirement, the most common response was “financial planning / investment advice,” including information on next steps to take, what their options are, understanding how much they’ll need for retirement, help in establishing a plan, understanding tax implications, and acquiring advice on growing their savings.

Indeed, most small business owners have either set aside money for retirement or have invested in real estate to help provide for the future. In addition to these resources, most also expect to rely on Social Security for part of their retirement income. On average, SBOs plan on using five sources of income to fund their retirement including but not limited to these top five:

• Social Security (71%)
• Savings and investments in stock, bonds, mutual funds, etc. (68%)
• IRAs (60%)
• Real estate investment other than primary home (42%)
• Income from business during retirement (38%)

Without this kind of planning, it will be difficult for small business owners to match their hopes with reality. For those SBOs who want to do more than dream about their financial future, ask a friend or client who they use as a financial advisor. Personal relationships play a key role in developing a successful advisor/client relationship and almost four out of ten SBOs met their financial advisor through a mutual acquaintance. It makes sense, as most SBOs also desired the same top-five characteristics: trustworthy, knowledgeable, experienced, listens and has integrity.