Soon-to-be retirees and even middle-aged workers are all too commonly playing catch-up on their retirement accounts, and still more are neglecting to build comprehensive, sustainable plans for their golden years. And while plenty of workers are finally grasping the growing need to save, invest and plan for long retirements, small businesses are still lagging behind.
Planning pitfalls are most common among the owners of small companies, who often put retirement savings and succession planning on the back burner as they focus on growing their businesses. According to a recent Business and Financial Planning Survey by CNBC and the Financial Planning Association, an average of 70 percent of small business owners’ wealth is invested in their growing companies.
What’s more, 42 percent of owners polled said that developing a retirement plan and exit strategy was their most pressing financial challenge, and 47 percent of advisors questioned said that only a fifth of their small business clients had any succession plan at all. “Small business owners are very myopic and tend to focus on the viability and growth of their business, ignoring much else, including their long-term financial needs,” Michael Branham, FPA Chairman, told CNBC. “There needs to be a balance between their personal and professional money goals.”
Small business owners aren’t ignorant of the need for an exit strategy, either. The CNBC / FPA survey also found that 94 percent of financial planners have discussed the issue of succession planning with their clients, and that they typically began the discussion no later than the first major business expansion. Overall, it seems the consuming nature of running a small company is keeping most owners from focusing on the futures they had in mind when they started their businesses.
Fortunately, plenty of SBOs are providing for their employees’ retirement needs, even if their own plans are far from set in stone. “From a broad base, we’ve seen an uptick in new plan formation,” said Neil Smith, Ascensus executive vice president. “While I don’t know what’s going on across the entire retirement spectrum, new plans are being formed by small companies.”
In fact, a TransAmerica Center for Retirement Studies’ 2014 annual survey showed that small business employees have become quite a bit more optimistic regarding their retirement prospects. Sixty percent of small company workers were “very confident” or “somewhat confident” that they would retire comfortably, compared to 55 and 50 percent in 2013 and 2012, respectively. Moreover, 49 percent strongly agreed or somewhat agreed that they’re building large enough nest eggs, compared to just 39 and 38 percent in the two years prior.