Why Small Business Owners Don’t Retire Early

Retirement! Is early retirement every business owner’s dream? Are small business owners any better prepared for retirement than employees are? Or are business owners and the self-employed destined to work forever? Here’s what some recent studies say about small business owners and retirement planning.

Ask small business owners when they plan to retire, and there’s a good chance you’ll get answers like these:

“Retire?  Me?  Never!”

“Maybe when I’m 70 or 75..”

On one hand those answers shouldn’t be surprising. One of the benefits of being a business owner, after all, is that you get to make the rules.  Assuming you’re the sole owner of your company, no one will ever force you out of your job or require you to retire because of your age.  So you can work as long as you’d like. Right?

Furthermore, many small business owners find working and running their businesses to be personally fulfilling. But what small business owners often leave unsaid, is that one of the primary reasons they plan to work well into their 70s is that they think they’ll need the income.

According to data gathered by SCORE, 34% of small business owners do not have retirement savings plans for themselves, and 40% of business owners are not confident that they will be able to retire before the age of 65.

“For many small business owners, the conventional concept of retirement is not realistic,” explains Mark Wolf, Director, The Guardian Life Small Business Research Institute. “They feel that keeping their business going and working in it full- or part-time are essential steps to provide a continuing income stream to supplement savings and investments diminished by the recession.”

Another reason business owners need that continued income, is because a majority of them fail to plan in advance for retirement. A study of small business owners’ savings for retirement released in 2010 by the US Small Business Administration Office of Advocacy revealed that small business owners just aren’t putting money away for the future. According to that report, “Retirement account ownership, contribution, and participation rates for all business owners are low.

“The IRA ownership rate for business owners is only about 36 percent, and only one-third of business owners with an IRA contributed for the 2005 tax year. Less than 2 percent of business owners own a Keogh plan. Only about 18 percent of business owners participate in a 401(k)/Thrift plan. “

Yet another reason for not retiring: there’s not likely to be a big pot of gold at the end of the business rainbow. This is particularly true if the business is a micro-sized business. The median selling price for all businesses sold through BizBuySell in 2021, for instance, was $324,000. That sounds like a decent amount of money until you subtract any commission that might have been paid to a broker and the income tax due on that sale. Furthermore, small and homebased businesses that make little profit, are likely to sell for a lot less.

Bureau of Labor Statistics research shows that the average spending for households of people 65 and over is $47,579. That doesn’t leave a lot of financial cushion if a business owner with no other savings were to retire at age 65 and they and their spouse live to be 85 years old or older.

The Need For Retirement Planning

As a small business owner, even if you expect to work “forever,” you need to save for retirement.  Although most successful small business owners don’t plan on things ever changing, change does happen. Industries change. The products and services people buy change. Shopping locations change. And B2B needs change, too. Unfortunately, a business owner’s health and ability to run their business may also change over the years.

Even if none of those changes happen, you may just decide one day that it’s time to make a change in your life. That it’s time to leave the business behind and do other fun things in life like travel… and spoiling grandchildren.

Whenever the day comes that you do retire, you’re going to need money. Chances are you’ll need almost as much money or possibly more to live on than you do now.  So, if you don’t have a retirement plan in place, talk to your accountant or a financial advisor and get one started now. Put as much as you can in it each year. The sooner you start saving for retirement, the longer the money has to grow and the more financially secure you will be at whatever age you finally do choose to retire.

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