The State of Small Business Retirement Savings and What SBOs Can Do About It

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As an entrepreneur and small business owner, you’ve probably thought about saving for retirement—but have you actually started? Have you implemented a retirement savings program for your employees? Because the payout is so far into the future, it’s easy to put it off as you deal with the pressing day-to-day concerns of your startup.

Plus, the sheer number options available can be overwhelming. Research shows that, while having more choices may seem appealing on the surface, it often hinders motivation and decreases satisfaction with the chosen plan.

But as a small business owner, not saving for retirement isn’t just a missed opportunity for you—your employees are also looking to you for guidance. If you aren’t making it easy for them to save, or at least encouraging them to set aside some money each month for retirement, then you’re both at a disadvantage. After all, saving for retirement is a numbers game. The sooner you start, the less you have to put into the account to achieve your savings goals.

The current state of retirement savings in small businesses

According to a study from American Express, 60 percent of small business owners surveyed say they aren’t on track to save the money they need to retire. An alarmingly high 73 percent of small business owners are worried about their ability to save for the type of comfortable lifestyle they want to enjoy when they retire.

With a focus on building and growing a business, it probably seems intuitive to invest every penny back into the company. Plus, most entrepreneurs are natural risk takers. Many are betting on eventually selling their company and using the proceeds to fund retirement.

But what if things don’t go according to plan?

With so much ambiguity around how much and when to save—as well as the dozens of other responsibilities competing for their attention—many small business owners don’t save and they don’t offer good retirement plans to their employees. As a 2009 study from the SBA reveals:

  • Many opt out. Fewer than one out of every five small business employees report participating in a retirement plan.
  • Some don’t have access. Nearly 72 percent of employees in small companies have no retirement plans available to them (through their company). Another 9 percent have company-sponsored plans but don’t actively participate.
  • Some feel like they can’t afford it. Those employees who don’t participate in company-sponsored plans often blame eligibility requirements and/or an inability to afford contributions with their monthly budget.
  • Owners struggle to afford set up and monitoring. One of the primary reasons small businesses don’t offer retirement plans to employees is the high cost of setting up and monitoring the plans.

The data shows that when retirement savings plans are available and encouraged, people are much more likely to save. But the cost of setting up and maintaining retirement plans means many small businesses don’t offer plans.

For example, let’s say a business owner is interested in establishing a 401(k) plan for employees. Most businesses pay a one-time setup fee and an annual monthly fee per user. It’s projected that the average cost for a first-year 401(k) setup is around $2,551 for a 10-person company.

So what should entrepreneurs do to avoid missing the boat on retirement savings?

1. Offer a company plan, if you can

If at all possible, entrepreneurs should offer company-sponsored plans. Not only will they help put your employees on track in terms of retirement savings, but can they also be leverage for attracting better talent.

There are lots of different plans available—from SEP IRAs and Simple IRAs to Simple 401(k)s and pensions—so do your research and find out what makes the most sense for your business and your people. Then spread the word. Make sure your employees understand how your plan works. Try to avoid offering too many choices—make it simple to start.

2. Educate employees on individual opportunities

Regardless of whether you decide to offer a company-sponsored plan, provide opportunities for your employees to learn about planning for retirement.

Even if it means discussing individual retirement plans and how they can get started saving on their own, education goes a long way. The worst thing you can do is avoid the topic altogether. This signals that you don’t care about the future.

3. Set yourself up for success

Having retirement plans available to you is one thing, but it’s important that you diversify your investments. There is often some level of risk associated with retirement investments, so don’t put all your eggs in one basket. If you have everything tied up in the stock market, there’s always the risk of a crash. Be sure to consider all of your options, including real estate investments.

And remember to think through investments that are taxed up front, and those you’ll pay taxes on when you withdraw money. There are pros and cons to both choices.

Having a successful retirement is all about making small sacrifices now. The more you’re able to give up in the moment, the brighter your future will be.

4. Take retirement savings seriously

When you’re 25, 35, or even 45, it’s easy to ignore retirement. Don’t wait! Because of the power of compounding interest, there’s tremendous value in starting to save as early as possible.

Consider two people—one who starts saving at 25 and another who waits until 35 to contribute to retirement. Even though the first person only contributes 33 percent more of her income over her career, she’s going to have twice as much saved as the one who started later by the time they reach retirement.

Ask a dozen financial advisors how much you need to fund your retirement and you’ll get a dozen different answers. However, one of the more conservative and sound strategies is the rule of eight, which Fidelity Investments encourages. This rule states that individuals should save at least eight times their ending salary by retirement.

“An 80 percent replacement rate is a common benchmark,” personal finance expert Tom Anderson writes. “That means if an investor makes $100,000 annually, he or she would need a portfolio that generates $80,000 in income each year plus annual increases to adjust for inflation.”

When you look at today’s annuity rates a 65-year-old retiree can expect to generate roughly $33,000 for every $500,000 saved. So, if you want to replace 80 percent of a $100,000 annual salary, you would need roughly $1.2 million stashed away. That’s just one rule of thumb, but it’s a good benchmark.

As a small business owner, it’s your duty to look out for both yourself and your employees. Help them take retirement seriously and lead by example. Reach out to a few different financial planning firms and ask for advice. Remember, saving for retirement doesn’t have to be an all or nothing scenario. Saving something is always better than saving nothing.

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Anna Johansson
Anna Johansson
Anna is a freelance writer, researcher, and business consultant. A columnist for, and more, Anna specializes in entrepreneurship, technology, and social media trends. Follow her on LinkedIn.
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