Why don’t some small business owners save for retirement?

The people who own and run small businesses are busy – extremely. They have a lot to worry about  — payroll, rent and trying to bring in new contracts. And, on top of that, it seems they are constantly recruiting and hiring.

What they might not make time for is preparing for retirement. And that’s a problem.

A 2013 study by The American College revealed that 40 percent of small-business owners have no retirement savings. Separately, according to the CNBC/FPA Small Business and Financial Planning Survey, 42 percent of financial professionals say retirement planning and an exit strategy are among the biggest problems facing small businesses.

There are a lot of reasons small business owners might not save for their own retirement. But primary among them, according to financial professionals, is they view their businesses as their retirement plan.

“They are pumping more money into (the business) with the anticipation that one day they get to sell the business,” says Reid Abedeen at Safeguard Investment Advisory Group in Corona, Calif. “That will be retirement plan.


“A lot of times we put discretionary money back into business instead of paying ourselves,” says Sandra Newman, founder and president of REAP Financial in Austin, Texas. “We put it back into business. It is a mistake. It’s important to pay ourselves first.


”Consider paying yourself first out of every paycheck,” she says. “Take care of you and your family first. Most of them have the same problem. They want to continue to put the discretionary money back into business. Hiring new employees and expanding the office has to be balanced with taking care of your own retirement.”

Jeff Imber, president of Imber Wealth Advisors in Ann Arbor, Mich., says that balance between putting the money back into the business and setting money aside is a big challenge for entrepreneurs.  “Most entrepreneurs know that putting their dollars back into their business is going to create more for them than putting money into savings account,” he says.


“The key is to treat yourself and your retirement as part of the cost of doing business,” says Imber. “Look at your future self as a bill. Just like we are paying for rent, advertising and staff, got to sock money away for future.”

The problem, he says is that most entrepreneurs will not be able to sell their businesses for what they think. “If you will be able to sell your business for tons of money, that’s good,” Imber says. “Most of them can’t sell their business for $20 million.”


Some business owners also tend to focus on their lifestyle over retirement planning and saving.

“Some people also feel they are marking more money and they want a bigger house and more vacations, which is fruit of having good job and owning your own business,” Imber says. “You don’t want to have lifestyle if it keeps you from contributing to you future.”

Imber recalled one client who had a lifestyle that was costing $300,000 a year and a home on the lake with no mortgage. The problem was he had saved nothing for retirement… Absolutely nothing.

“Like anybody, you are so caught up in your own business,” he says. “It’s like being pregnant forever. You are carrying that baby all the time. You aren’t thinking about the future. Entrepreneurs are used to doing things for themselves. But it could be smart to pay for an advisor to help with your plan. You likely need more than a financial professional or a CPA. You need an advisor.”

Also, some entrepreneurs are so caught up in doing everything, they neglect the planning process altogether, Imber says. “There’s a struggle between how much cash flow you will have. You never know how much you have to invest in or set aside for the future. It is a struggle. You want to squirrel away money for emergencies.”

Abedeen says business owners like to be in control. They know their business, and they are most comfortable investing in it.


“I always give them an example,” he says. “We are always told to never put all our eggs in one basket. I say I understand that you need control and know your business. But you should never put all your eggs in one basket and you need to diversify. We would never put all our money in real estate, or put all our money in stocks.


“A lot of times they don’t want to lose that element of control, but we say you are gaining control by (asset) diversity,” Abedeen says. “We discuss options on how they can do this efficiently. They listen. They understand. If they are willing to look at business realistically, I show them how to do it tax-efficiently with a 401(k) or a SEP IRA. A lot of things will save them money in taxes every year and help save for their retirement plan.


“When you illustrate when they do retire, their kids take over the business, or someone purchases it, not only do they have sale proceeds of the business, but they have this retirement income strategy in conjunction. Then they will listen,” Abedeen says.


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