Access to retirement funds is one element of a thriving middle class, and a thriving middle class is essential to small business health. A prosperous middle class is full of customers who are able to spend money and who can help support small business. Yet, a few of the key elements that make for a thriving middle class are some of the top issues facing small business owners.
When it comes to affordable retirement, both for themselves and their employees, small business owners face serious challenges. Nearly half of all Americans report having no retirement savings, and small business owners can’t reasonably sustain the risk or cost of providing a retirement program.
The Department of Labor recently issued rules that freed up states to start implementing “secure choice” retirement initiatives, which provide access to secure, low-cost, state-run retirement savings plans. However, the House voted to repeal the rules, leaving it to the Senate to decide whether small-business owners will be able to benefit from these programs.
As a proactive small business owner, here’s what you can do in the meantime to save for your own retirement and help your employees save as well. Tweet This
1. Research the Retirement Plans that are Available to Small Business Owners
There are four types of retirement plans that small-business owners might consider:
- Simplified Employee Pension Plan (SEP IRA)
- Savings Incentive Match Plan for Employees (SIMPLE IRA)
- Self-Employed 401(k) plan
- 401(k) plan (better for larger companies)
Many retirement plans offer tax advantages, but there is a lot to consider before choosing a plan for your business, like how many employees you have or want to acquire, who will be contributing to the plan (just the employer? the employer and employees?), ease of setup, maintenance fees, contribution limits and more.
2. Talk About the Company’s Future
Too often, small business owners’ retirement plans are their business. They either plan to turn the company over to a family member and receive future profits, or sell the company and use the capital as retirement funds. Considering any business, especially a small one, is at risk to fail, this retirement approach may not be the best. What if family members turn down the opportunity to run the business? Or, what if the value of your business severely decreases and you aren’t able to sell at an ideal price or at all? It’s best to have backup options and to talk to your family members regularly about what their plans are. Otherwise, you may end up scrambling to prepare for retirement.
3. Prepare the Business to Run without You
According to Forbes, when small business owners were asked the value of their business if it were sold today, 55% estimated less than $500,000. Only 13% believed their businesses were worth more than $1 million. Perhaps business owners need to spend time and effort building out their business to be high value and easily sellable. A key challenge here is whether or not the business could succeed without the owner. If the business can’t run without you, you could have a hard time selling the company or getting an ideal buy-out. If your business is your retirement plan but it can’t be successful without you, it may be time to make some changes.
For Your Employees:
Offer the Best Plan You Can
The best thing you can do for your employees is to actually offer them a retirement plan. Hopefully there’s a plan above that suits your business and can help your employees, but if not, there are still other ways to help.
Talk to Your Employees About myRA
A myRA is a starter retirement savings account developed especially for people who don’t have access to employer-sponsored retirement savings plans, like small business employees. A myRA is a type of Roth IRA that invests in U.S. Treasury retirement savings bonds, which do not lose money. These accounts cost nothing to open, have no fees, and don’t require a minimum amount of savings. Learn more about the myRA.
Beef Up Other Benefits
Maybe a retirement plan just isn’t in the cards for your business right now, that doesn’t mean you can’t offer other incentives to keep your employees happy and even help them save. Maybe it’s more affordable for you to offer free meals, gas reimbursement or yearly bonuses than it is to offer a retirement plan. Chances are, anything that helps your employees save and shows that you care will be appreciated. Brainstorm other benefits you could offer to offset the lack of a retirement plan.
As more and more states work on passing laws to get business owners access to retirement plans or to require businesses with a certain number of employees to offer retirement plans, it is becoming more important for all small business owners to understand their options, both for themselves and their employees.
Check out the rest of the proactive small business owner series:
Photo Credit: ameg2013, Twenty20