As retirement confidence among employees remains low, small business owners and their workforces may even be less prepared due to the scarcity of formal retirement education and established retirement savings plans to help this demographic.
But retirement confidence among small business owners is remarkably high, according to new research from Guardian Life Insurance Company of America. Approximately 52% of the 1,500 small businesses surveyed up from 50% in 2011 are feeling more confident about retirement. Meanwhile, 37% of the employers with fewer than 100 employees say they are banking on selling their businesses to fund their retirement futures.
And while some owners may be worrying about their companys future sale, others are concerned about their employees futures. The Guardian survey results point out that women and younger entrepreneurs were more likely to provide some retirement help to their employees. Women seek out the help of a financial adviser to help educate themselves and their employees about retirement. And younger business owners, in the 25-34 age group, exhibited more concern for employee retirement planning, and considered it vital to provide access to financial professionals only if they provide big company solutions with a small company touch and if they meet with employees to educate them, the Guardian survey says.
Its overwhelmingly important that advisers are properly prepared and educated to help the needs of this growing population of entrepreneurs/innovators, for their expectations are quite different, says Douglas Dubitsky, vice president of Guardian Retirement Solutions. In many cases its integral for advisers to partner with SBO resources like their CPA or lawyer to properly set them up, which means the adviser needs to understand how to build strong relationships across their full scope of professional advisers.
Despite the general increase in retirement confidence among small business owners, only a handful of them have lined up potential buyers, according to The Small Business Owners Retirement Readiness Study.
We believe that placing the sole reliance on the sale of their businesses shouldnt be the only planned source [of income] for retirement, says Dubitsky, while noting that only some owners may achieve the maximum value for their companies should a sale occur.
The Department of Labor estimates that Americans need to save 70% to 90% of their preretirement income in order to maintain their standard of living when they retire. But the Employee Benefit Research Institutes 24th annual Retirement Confidence Survey finds that only 18% of workers are very confident and 37% are somewhat confident that they have saved enough to live comfortably in retirement. Meanwhile, 24% percent are not at all confident, and an aggregate of reported worker savings still remains low, says EBRI.
Meanwhile, Nevin Adams, the former co-director of EBRIs Center for Research on Retirement Income, believes that small businesses have the same issues and concerns that any working, saving individual would have.
They likely know that the security of their retirement is all on them, as opposed to thinking that their employer is going to provide for them, says Adams, who is now the communications chief at the American Society of Pension Professionals and Actuaries, a national retirement plan professionals organization.
Possible options, available through the Internal Revenue Service and the DOL, for all employers to consider is establishing individual retirement accounts, defined contribution, or defined benefit plans for their workers. Also, SIMPLE IRA plans, a savings option for employers with 100 or fewer employees, requires employee payroll deductions and employer contributions.
According to Dubitsky, its important for employers to set up 401(k)s, or another qualified plan for their employees. But Adams notes that setting up a 401(k) feels complicated for a small business owner.
One positive is that employees in 401(k)s are now able to save more for retirement, according to the IRS. Starting in 2015, employees will be able contribute up to $18,000 to their 401(k)s, an increase of $500, according to the IRS. And for SIMPLE retirement accounts, limits will rise from $12,000 to $12,500 and catch-up limit increases to $3,000, a $500 increase from 2014.
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