Kari Warberg Block calls it her day of reckoning. It was the day 10 years ago that she realized she had saved nothing for her retirement.
I started thinking about all the money that had run through my hands over the years, millions of dollars, says Block, owner of Earth-Kind, a manufacturer of rat and mice repellent. I was sick to my stomach.
For many small business owners, the golden years arent looking so shiny. Many have devoted so much time and money to their businesses that they have failed to plan for retirement. Catch-up plans for these owners usually consist of aggressively putting money aside, or taking another big risk: Planning to sell their companies one day to fund their retirement.
Saving for retirement often takes a backseat to building a company for many owners in good times or bad. Many dont want to spare money that could be used for research and development, new hires or purchases of equipment or property. A study by the Small Business Administration found that only about a third of owners had Individual Retirement Accounts or made contributions to them in 2006. Only 18 percent had a 401(k). In comparison, nearly two-thirds of all families had some sort of retirement savings, either from an employer or their own IRA or similar accounts in 2007, according to the Employee Benefit Research Institute.
Block, 50, who has owned four companies over the years, didnt start saving for retirement until she was unable to get a loan for Earth-Kind in 2003, three years after she started the company, based in Bismarck, N.D. Her bank asked for a statement showing her personal financial holdings, including savings and investments. She only had an annuity she had purchased when she was 18, and a family inheritance. She had never taken money for her retirement out of the companies she had previously owned, which included bookkeeping and delivery services.
I looked at the personal finance statement and realized, theres nothing here, Block says. Bankers want to see an owners personal finances because they believe that people who handle their savings and investments well will also do a good job running their companies and be a good credit risk.
Block sought advice on how to save from a Small Business Development Center, a government-sponsored office that gives free counseling to business owners. She also got help from investment brokers, asset managers, an accountant and an attorney. And she began a savings regimen.
Before Block began saving she was in good company. Sixty percent of small business owners surveyed by American Express say theyre not on track to save the money they need for retirement. Seventy-three percent said theyre worried about their ability to save for the lifestyle they want in retirement.
The recession made saving more difficult for many owners. The downturn, and the plunge in lending to small businesses, during the past five years forced many owners not only to put saving on hold, but also to use personal assets like bank accounts, stocks and mutual funds to keep their companies running. In the first quarter, a survey of small business owners by Pepperdine University and Dun Bradstreet Credibility Corp. found that 42 percent had used personal assets to fund their companies. Nearly 80 percent of those owners dipped into their savings or investments.
The recession forced Len Polonsky to stop saving. Revenue slid at his medical and office supply company. He cut more than half his staff and reduced his own salary by more than 50 percent. Having enough money to pay the companys other expenses was the priority.
Polonsky, 56, isnt worried about his retirement because he considers his company to be his 401(k), but he does have some savings and investments. He says he wants to resume saving when the business is stronger. He thinks that will take another year.
Were probably going to need to see sales up more than 20 percent than were doing now, he says.