Small Business Owners Often Overestimate Ability to Retire

A majority (52%) of small business owners state they are either “very” or “fairly” well prepared for retirement, according to a study by The Guardian Insurance & Annuity Company (GIAC).

The study suggests there is an increasing number of small business owners (SBOs) planning to use small business equity to help fund their own retirement. Thirty-five percent of SBOs polled by GIAC state they started their business specifically to fund their retirement, up from 25% in 2011. Thirty-nine percent believe they can retire earlier than planned due to their small business, up from 31% in 2011. 

One troubling finding from the study shows 35% of SBOs today are relying on the sale of their business in order to be fully prepared for retirement. But amid their confidence about retirement security, only 17% have actually taken steps to identify potential buyers for their businesses. This exposes a disconnect between retirement preparedness and aspirations among SBOs, GIAC observes. 

Overall, SBOs polled for the study are risk-tolerant and feel that having their own business is the best way to create the wealth they want. However, more planning is necessary in order for these aspirations to match their retirement needs.

“Many small business owners are counting on the sale of their business to fund their retirement, but this expectation comes with a great deal of risk,” says Douglas Dubitsky, vice president, Guardian Retirement Solutions. “The best approach is to work with the right financial professional who will design a customized plan and provide a clear understanding of how it will meet their retirement goals.”

Half of the respondents report they spoke to their financial adviser when building a retirement outlook. Additionally, 84% say they are very satisfied or satisfied with their financial adviser, and 83% plan to keep their adviser when they retire. SBOs who use a financial adviser are more confident in their ability to sell their business and retire successfully, GIAC says. 

The survey denotes a disparity in responses depending on gender, as 45% of women SBOs confess they are confident about and financially prepared for retirement, compared to 56% of men. Additionally, women are more likely to prefer an adviser who pushes them toward their goals (33%), compared to men (23%). Men are more likely to want an adviser who is creative and takes calculated risks (28%) compared to women (21%).

“Women SBOs can do more to prepare for retirement and feel as confident as their male counterparts,” Dubitsky says. “A retirement savings plan is an essential tool for any small business owner’s financial security. Yet, it needs to be put into motion many years before retirement.”

The full results of the “Small Business Owners Retirement Readiness Study” are available here.