Small Business OwnersPerspectives on Retirement

Small Business OwnersPerspectives on Retirement

The Guardian Life Small Business Research Institutewww.smallbizdom.com

June 2011

The Guardian Life Insurance Company of America, New York, NY

Table of Contents

• Background and Methodology…………………………………………3• Executive Summary………………………………………………………….4• Detailed Findings……………………………………………………………..7

– Retirement Preparedness……………………………………………………8– Retirement Aspirations and Needs…………………………………….12– Entrepreneurship, Second Careers and Succession Plans…..16

• Classification Information……………………………………………….24

2

Background and Methodology

• Over the past two years Guardian has conducted research among small business owners (SBOs). The current findings are being released by the Guardian Life Small Business Research Institute, a resource devoted to providing deeper knowledge, insights and wisdom about SBOs and the businesses they build.

• Data was collected via an online survey fielded by Harris Interactive from December 2 – December 19, 2010

• Nationally representative sample of 1,433 small business owners. • For the purposes of this research, small business owners are defined as those that

live in the United States and are either owner or part owner of a business or professional practice with:

– Annual revenues of $500,000 or more – Two and 99 employees.– Between 25 and 74 years of age and – Annual household income of $75,000 or more

Primary Objective of this research:

3

Executive Summary

4

Are Small Business Owners prepared for retirement?

• Small Business Owners admit they are not well prepared for retirement, despite their realization that they are growing older and that they expect to live 20 years in retirement.

• Less than half feel very or fairly well prepared.• Two-thirds do not have a written retirement plan, and most of them are not

sure if they will create a plan in the future. • Over eight in ten have started to save for retirement, but only half have

consulted a financial advisor.• Most will rely on their investments, social security and IRAs.• But the minority will have pensions, real estate and the sale of their business

to fall back on.

5

Are some Small Business Owners never going to retire?

• Four in ten Small Business Owners never plan to retire entirely. • Retirement for these folks is going back and forth between full and part-time

work, starting a new business or working full or part-time in another area.• The reason they won’t retire is because they need the money. Six in ten state

it’s very important to have enough money to retire, make enough money to pay their bills, and not outlive the money they will need in retirement.

• Another underlying problem could be that many Small Business Owners are used to doing everything themselves and this includes planning for retirement.

6

Detailed Findings

7

Retirement Preparedness

Detailed Findings

8

Retirement PreparednessVery few Small Business Owners are prepared for retirement

 Total

 Base (n=1433)Very/fairly well prepared for retirement (Top 2 Box)

Very well prepared

Fairly well prepared

Somewhat/not really prepared for retirement (Bottom 2 Box)

Somewhat prepared

Not really prepared at all

Level of financial preparation for retirement

BASE: ALL QUALIFIED RESPONDENTSQ725. How well do you think you are prepared financially for your own retirement?

9

Concerns about retirement needs and sense of growing older are primary reasons for starting retirement planning

Retirement Preparedness

  Total Base (n=1433)

Concern for my own needs in retirement 73%

I'm growing older 65%Concerns about passing on wealth to my heirs or to charity 29%

My financial advisor broached the subject 17%Desire to do something different 16%Thoughts for someone to run the business when I stop working 16%

My spouse or life partner started planning or retired 14%Health concerns 13%

My CPA/accountant/ attorney broached the subject 13%

Concern for my employees and their retirement 12%My family member broached the subject 6%Other 5%Haven't started planning 5%

Level of financial preparation for retirement

BASE: ALL QUALIFIED RESPONDENTSQ755. What would you say were your main reasons for starting your retirement planning?

10

Retirement PreparednessSavings and investments, Social Security, and IRAs are primary sources of funding for retirement among Small Business Owners

Total

Base (n=1433)Savings and investments in stocks, bonds, mutual funds, etc. 76%

Social Security 76%IRAs 67%Real estate investments other than my primary home 41%

Part-time employment during retirement 35%Income from my business during my retirement 35%

The proceeds from the sale of my business 34%Retirement plans I've funded for my business 32%

Retirement plans/pensions from former employers 28%

Inheritance 23%The business will continue to pay me after I retire 22%

Annuities 20%The proceeds from the sale of my primary residence 20%

Sources used for funding retirement

BASE: ALL QUALIFIED RESPONDENTSQ765. Which of the following will you use to fund your retirement:

11

Retirement Aspirations and Needs

Detailed Findings

12

Retirement Aspirations and NeedsNearly 40% of Small Business Owners do not intend to fully retireLess than 10% intend to never work for pay again

 Total

Base (n=1,433)Starting a new business 4%

Going back and forth between periods of work and periods of leisure as my situation allows

39%

Working part time 14%Working full time 10%Volunteer work along with paid work

14%

Volunteer work without any paid work

6%

Never working for pay again 9%

Something else 3%

Ideal plan for retirement

BASE: ALL QUALIFIED RESPONDENTSQ700. Please tell us which one of the following best represents your ideal plan for how you would like to live in this stage.

13

Retirement Aspirations and NeedsWhile the average intended age for retirement is 65, nearly one third of Small Business Owners plan to either retire older than 70 or to never retire

Total

Base (n=1,433)

Younger than 55 3%

55-64 22%

65-70 45%

Older than 70 12%

Never plan to retire

17%

MEAN 65.8

MEDIAN 65

Expected retirement age Years expected to live in retirement

BASE: ALL QUALIFIED RESPONDENTSQ705. At what age do you think you will retire?

Total

Base (n=1,197)

0-5 2%

6-10 8%

11-15 17%

16-20 33%

More than 20 39%

MEAN 21.9

MEDIAN 20

BASE: PLAN TO RETIREQ710. And how many years do you expect to live in retirement?

14

Retirement Aspirations and NeedsA majority of Small Business Owners will find it difficult to retire from their business

 Total

 Base (n=1,433)

I will find it difficult to completely 'retire' from my business 58%

I have a clear vision of how I will spend my time when I'm no longer involved with my business 50%

I am looking for (or receptive to) good advice about retirement planning 48%

I am eagerly looking forward to retirement 43%I do not really want to retire 35%I do not have a plan to earn income if I become sick or injured and can no longer run my business 34%

I don't know if I can afford to retire 34%Because of my business I can retire earlier than I planned 31%I am counting on the sale of my business to be financially prepared for retirement 30%

I never plan on retiring 28%I started my small business to fund my retirement 25%

Attitude towards retirement

BASE: ALL QUALIFIED RESPONDENTSQ721. Please indicate whether you agree or disagree with the following statements about retirement: [SUMMARY TOP 2 BOX]

15

Entrepreneurship, Second Careers and Succession Planning

Detailed Findings

16

Entrepreneurship, Second Careers and Succession PlanningA majority of Small Business Owners see their business as a means to creating wealth

  Total

 Base (n=1433)

Having my own business is the best way for me to create the wealth that I want

73%

Entrepreneurship runs in my family 49%

Keeping my business in the family is very important to me 24%

My business has been in my family for more than two generations 11%

I do not have a succession plan because I plan to sell my business 29%

Strength of relationship with business

BASE: ALL QUALIFIED RESPONDENTSQ816. Please indicate whether you agree or disagree with the following statements. [SUMMARY TOP 2 BOX]

17

EntrepreneurshipNearly half of Small Business Owners started their business themselves

How the business came under ownership

BASE: ALL QUALIFIED RESPONDENTSQ820. How did you come into your business? Did you....

  Total Base (n=1433)Start it yourself 49%Start it with a partner 30%Buy it from a third party 9%

Buy it from a family member 5%

Inherit it 4%Other 4%

18

Second CareerFor more than one third of Small Business Owners, their second business is a second career

Industry of First Career

BASE: BUSINESS IS A SECOND CAREERQ915. How many years did your work in your first career?

  Total Base (n=469)A large corporation 49%A small to medium sized business 34%The public sector/a government organization 17%

Number of Years in First Career

  Total Base (n=469)0-5 6%6-10 18%11-15 17%16-20 18%21-25 17%26-30 11%More than 30 12%MEAN 19.3

BASE: BUSINESS IS A SECOND CAREERQ910. In your first career, did you work in?

19

Second Career

BASE: BUSINESS IS A SECOND CAREERQ920. Why did you leave your prior career and go into business for yourself?

Reason for leaving prior career

  Total Base (n=469)You wanted to live your life on your own schedule and not have your job set it for you 52%

You did not want to work for someone else 47%You wanted to make a lot of money 28%You knew you had something unique to offer 26%It was something you always dreamed of doing 26%

20

Second CareerFinancially Prepared for Retirement

BASE: BUSINESS IS 2ND CAREERQ765 Which of the following will you use to fund your retirement:

  Total Base (n=469)Very well prepared 16%Fairly well prepared 32%Somewhat prepared 39%Not really prepared at all 13%

Sources of Retirement Funding

  Total

 Base (n=469)Savings in stocks, bonds, etc. 76%Social Security 79%IRAs 67%Retirement plans/pensions from former employers 38%

BASE: BUESINESS IS 2ND CAREERQ725 How well do you think you are prepared financially for your own retirement?

21

Succession PlanningOnly one third of Small Business Owners have a business succession plan

Total

Base (n=1433)

34%

Percentage with a succession plan

BASE: ALL RESPONDENTSQ805. Do you currently have a succession plan (or plan for someone to take over when you stop working) in place for your business?

22

Succession PlanningLess than 20% of Small Business Owners who plan to develop a succession plan will do so in the coming year

  Total

Base (n=596)

Less than 6 months 5%

6 months to less than 12 months 14%

12 months to less than 24 months 21%

More than 24 months 16%

Sometime in the future, nothing specific 44%

Timeline to develop succession plan among those who do not have a succession plan

BASE: PLANNING TO DEVELOP SUCCESSION PLANQ812. Within how many months do you plan to develop a succession plan?

23

Classification InformationQ1330 Household Savings and Assets %

Under $50,000 14

$50,000 - $99,999 7

$100,000 - $249,999 14

$250,000 - $499,999 14

$500,000 - $749,999 12

$750,000 - $999,999 6

$1,000,000 - $2,499,999 14

$2,500,000 - $ 4,999,999 6

$5,000,000 or more 2

Q1325 Household Income %

$75,000 to $99,999 18

$100,000 to $149,999 30

$150,000 to $199,999 20

$200,000 to $249,999 9

$250,000 to $499,999 12

$500,000 or more 6

Decline to answer 5

Q1320 Company Industry %Accommodation and Food Services 2

Administrative Support Services 1

Agric./Forestry/Fishing/Hunting 1

Automotive Services 2

Engineering Services 3

Legal Services 1

Research Services 1

Technology Services 7

Waste Management/Remediation Services *

Other Services 9

Manufacturing 4

Q268 Gender %

Male 69

Female 31

Q280 Age %

25-29 2

30-34 5

35-39 6

40-44 10

45-49 15

50-54 15

55-59 19

60-64 20

65 and over 8

Q1305 Years Owning Business %

1-10 44

11-20 29

21-30 21

31-40 5

More than 40 1

Q600 Business Type %

An owner or part owner of a business 89An owner or part owner of a professional practice (such as medical, dental, or law or accounting practice) 11

Q610 Work Full-time for Business %

Yes 94

Q615 Number of Full-time employees %

Under 5 62

5-10 21

11-20 10

21-30 3

More than 30 4

MEAN 7.6

Q1315 Family Owned Business %

Yes 51

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