Small business owners experience different retirement planning challenges than typical employees, according to a small business retirement plan misconception survey by Paychex, Inc. It found that more than half of small business owners don’t have a formal retirement savings program at their business (53 percent).
Without this benefit in place, small business owners can face uncertainty as they plan for retirement and look ahead to selling their business or handing off operations to a successor.
According to another Paychex’s survey, only 30 percent of small business owners said they felt “somewhat confident” that they’ll be financially prepared to stop working sometime between the ages of 61 and 65, and 21 percent of respondents said they were “not at all confident” that they’ll be financially prepared to retire when they reach that average retirement age.
Eighteen percent fell between “somewhat confident” and “not at all confident” on the survey’s retirement readiness scale.
Altogether, that means 69 percent of small business owners indicated having zero to little financial preparedness to begin retirement once they stop working.
What can you do as an advisor to help boost small business owner clients’ confidence in their ability to retire? Understanding what they see as the opportunity areas is key. When asked how they could gain fiscal assurance, small business owners indicated the following:
- 68 percent surveyed said that simply being able to save more would bolster their confidence;
- 10 percent want assistance in converting lump-sum accounts to projected monthly income;
- 10 percent want more guidance on investments and appropriate savings rates;
- and 8 percent would like better retirement tools to help them understand expenses such as healthcare costs in retirement.
As with any other client, the first step is to sit down with your small business owner clients and develop a financial plan, keeping in mind that small business owners are often relying solely on the sale of their business to fund their retirement.
To ease their burden further, you can also help small business owners understand how a formal retirement savings plan, such as a 401k can work for their business.
Results of the first study mentioned above show that 59 percent of small business owners don’t think they can afford a retirement plan and 44 percent don’t see the need or benefit to offering a retirement plan. In reviewing their business details, you can provide an informed recommendation on how a retirement plan can work for them and their employees.
Paul Davidson is director of product management at Paychex, a leading provider of integrated human capital management solutions for payroll, HR, retirement, and insurance services.
