The Retirement Preparedness of the Business Owner

Abstract

In the United States, there are over 20 million companies (about 90% of small businesses) with less than 20 employees, and the majority are owned by “owner-managers.” More than half of small business owners are over age 50, and so the next 20 years will bring a wave of owners who will age out of business ownership. In surveys, many business owners answer “never” to the question of when they will retire, an honest but worrisome response. Using employee retirement preparation as a benchmark, the author asks: Is retirement preparation different for the self-employed business owner? Intuitively, a different retirement landscape emerges from the issues of exiting the business in order to retire. This likely will cause a business owner’s retirement preparation and timing to differ from that of an employee. The article focuses on the self-employed owners of smaller companies, whose association with the business is about 20 years on average and for whom retirement likely will be their one and only business exit. Most of what is written and discussed about retirement preparation is focused on employees. Using data from the Federal Reserve’s 2013 Survey of Consumer Finances, the author makes comparisons with the generally accepted “three-legged stool” model of U.S. employee retirement preparation, which broadly drives employee retirement age and preparations. It does not, however, account for key differences between the retirement preparation of the employee and the small-business owner. These differences range from the lack of a socially defined retirement age for business owners to the need for disengagement from, and disposition of, the business and a frank assessment of whether or not the business can even be considered an asset for retirement.