July 14, 2011

Do you plan to retire from your business at some point? If so, you’re in the minority, according to a new study by The Guardian Life Small Business Research Institute.

The survey, Small Business Owners Perspectives on Retirement, conducted in December 2010, polled 1,433 small business owners of companies with two to 99 employees. While most expect to live well into their retirement years, one in three say they will wait until after age 70 to retire. Four in 10 plan never to retire to at all. And fewer than 10 percent envision a traditional “retirement” in which they stop working altogether in their mid-60s.

Here’s what the small business owners surveyed said:

• Less than half (45 percent) feel very or fairly well prepared for retirement.

• 39 percent expect go back and forth between periods of work and periods of leisure.

• 14 percent plan to work part-time.

• 14 percent think they will engage in volunteer work along with paid work.

• 10 percent plan to work full-time.

• 9 percent say they will fully retire and never work for pay.

• 6 percent think they will engage in volunteer work without any paid work.

• 4 percent intend to start a new business.

• 3 percent—something else.

“For many small business owners, the conventional concept of retirement is not realistic,” said Mark D. 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.”

Guardian’s survey found that nearly two-thirds of small business owners fear outliving the money they need to retire. Although Guardian found that 80 percent of small business owners had begun to save for retirement, failing to put aside adequate funds is an occupational hazard for entrepreneurs. When your business is in the startup or growth stages and you have to choose between putting money back into the business or taking it out for yourself—many entrepreneurs vote for the former, then hope that eventually selling their businesses will finance retirement (or at least make up any shortfall).

However, this strategy can easily backfire. Douglas Dubitsky, Vice President, Product Management, Retirement Solutions Division of Guardian Life Insurance Company of America, noted that nearly one-third of entrepreneurs surveyed plan to rely on the proceeds from the sale of their companies to finance retirement. “However, depending on market conditions,” Dubitsky cautions, “the value and salability of many businesses have significantly declined, reducing their potential contribution to a retirement plan.”

Another factor that might affect small business owners’ ability to retire: Just one-third of small business owners have a succession plan in place, and only 19 percent say they plan to create one in the next year.

The Guardian report theorizes that the findings are a result of longer life expectancies and the impact of the recession. I have to disagree. Yes, I’m sure some business owners’ retirement funds have been affected by the recession, and others have simply failed to plan. However, for many entrepreneurs, the ability to run your own business and call the shots is what makes getting up in the morning worthwhile. Who would want to give that up?

View the full survey results at the Guardian website.

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Anita Campbell, Article, retirement, financial management, Small Business Trends