Two reports released recently by the SBA and spotlighted in The Entrepreneurial Mind blog confirm what many small-business owners may already know: Entrepreneurs and their employees aren’t saving enough for retirement.
Saving for Retirement: A Look at Small Business Owners (PDF), written by SBA economist Jules Lichtenstein, assesses how well entrepreneurs are preparing for their own retirement. Among the results:
- Just 36% of business owners have individual retirement accounts (IRAs). Of those, one-third contributed during the 2005 tax year (latest data available). Only 18% of business owners have a 401(k) plan, and less than 2% have a Keogh plan.
- The business owners most likely to have and contribute to retirement accounts are non-minority, older, have higher education levels, own more established and more profitable companies and are more likely to own multiple businesses.
- The overall asset ownership of entrepreneurs affects how they save for retirement. Those who own homes and have other retirement accounts are most likely to have IRA, Keogh or 401(k) participation (in other words, those who have one type of retirement account are likely to have more than one.)
- Business owners who own micro-businesses (less than 10 employees) are less likely to own or contribute to retirement accounts.
The second SBA study, Small Business Retirement Plan Availability and Worker Participation (PDF), assessed participation in retirement plans by employees of small businesses. Among author Kathryn Kobe’s findings:
- Nearly 72% of employees at small businesses did not have a company-sponsored retirement plan available. Nine percent had a company-sponsored plan available, but do not contribute to it. Just 19.5% of small-company employees both have and contribute to a company-sponsored retirement plan.
- Employees who are older, married and better-educated are more likely to participate in company-sponsored plans.
- Of the small businesses that have retirement plans for employees, 25 percent offer defined benefit plans and 75% have defined contribution plans.
- The costs of instituting and running the plans are the primary reasons small businesses don’t offer them.
In his study, Lichtenstein concluded there’s a need to develop “ways that help the owners of the smallest businesses, especially home-based businesses and sole proprietorships, increase their retirement savings. Developing ways to help minority, especially Hispanic, business owners increase their retirement savings is also a policy goal suggested by this study’s results. In addition, there is a need to better coordinate employer-based retirement accounts with individual-based accounts like IRAs and make plans less complex and burdensome, especially for owners of micro-businesses.”
With small businesses employing so many Americans, it’s more important than ever that those business owners and their employees have retirement options available.