Retirement is on the back burner for a majority of the self-employed population, and most aren’t utilizing tax-advantaged retirement accounts, according to a new study released in late July.
The nonprofit Transamerica Center for Retirement Studies (TCRS) found only 26% of the self-employed are “very much” looking forward to retirement, as most envision being able to “retire on their own terms” if they retire at all.
Sixty-eight percent of the self-employed expect to retire after age 65 (compared to 54% of employed workers) and 28% do not plan to retire at all.
The study of 755 respondents, “Self-Employed: Defying and Redefining Retirement,” explores the retirement outlook of individuals who are primarily self-employed. Forty-seven percent of respondents reported being sole proprietors and 27% own a business that employs others.
“The self-employed are enjoying life. Given the autonomy and flexibility in their work situations, the concept of retirement is less relevant to them and not necessarily something they aspire to,” said Catherine Collinson, CEO and president of Transamerica Institute and TCRS.
“The self-employed enjoy greater freedom than employed workers—but it comes with complex retirement planning requirements. While working beyond traditional retirement age can bring income, opportunities to save, and healthy-aging related benefits, planning not to retire is not a retirement strategy,” Collinson said. “All too often, life’s unforeseen circumstances can derail the best-laid plans. The self-employed can and should be doing much more to build and protect their long-term financial security.”
Retiring (or not retiring) on their own terms
“Unfettered by employers that can profoundly influence when and how they will retire, the self-employed have a strong vision of retiring on their own terms. Many intend to work beyond traditional retirement age, while others have no intentions of ever retiring,” Collinson said.
Sixty-eight percent of the self-employed are planning to work past age 65, including 40% who expect to retire after age 65 and 28% who do not plan to retire. Moreover, 62% plan to continue working in retirement. Among the self-employed who expect to retire after age 65 and/or continue working in retirement, their reasons for doing so are more often healthy-aging related (83%) than financial (73%).
The most often cited reasons are to be active (59%), keep their brain alert (56%), enjoy what they do (54%), and want the income (54%). The majority of the self-employed (74%) envision either continued work or a gradual transition into retirement, including 28% envisioning working as long as possible, and 46% thinking they will reduce their work hours or work in a different capacity that is less demanding and/or brings greater personal satisfaction.
Only 11% of the self-employed plan to immediately stop working when they retire.
Retirement savings of the self-employed
“Whether or not they intend to retire, the self-employed should financially prepare themselves for a time when they will no longer be working. Unlike employed workers with steady paychecks and employer-sponsored benefits, the self-employed must take a do-it-yourself approach to preparing for retirement,” Collinson said.
Most of the self-employed are saving for retirement to a greater or lesser extent, with 55% consistently doing so, and 30% saving from time to time. A concerning 15% say they never save for retirement.
Total household retirement savings among the self-employed is $71,000 (estimated median). The research finds that relatively few are saving in tax-advantaged retirement accounts, which suggests they may be missing out on an opportunity. Only 31% are saving in a Traditional or Roth IRA.
The self-employed expect diverse sources of income when they retire. Seventy percent are expecting income from Social Security, and 54% from other savings and investments. Of note, only 40% expect retirement income from typical retirement accounts such as 401ks, 403bs, or IRAs.
Since the majority of the self-employed plan to work in retirement, it follows that 38% expect income from working. Among business owners (sole proprietors and those who employ others), 49% expect income from their business and 17% expect income from the sale of their business.
More survey highlights
- 71% of the self-employed are currently saving for retirement, but 29% are not.
- Only 46% of age 50+ self-employed are aware of catch-up contributions to 401ks, 403bs and IRAs.
- The self-employed have saved $10,000 (median) for unexpected major financial setbacks. Only 23% have disability insurance that can protect their income if they are unable to work.
- Only 18% of the self-employed have a written retirement strategy that estimates retirement savings and income needs.
- 38% of the self-employed who are saving for retirement use a financial advisor to help manage their retirement savings and investments.
- Building savings (56%) and saving for retirement (50%) are the two most often cited financial priorities among the self-employed. Forty-six percent of the self-employed cite paying off some form of debt as priority, a finding that is significantly lower than found among employed workers (64%).
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
