What entrepreneurs should be doing for their retirement savings

Entrepreneurs and small-business owners do all sorts of wacky things with retirement savings, but let me just call out the biggest mistake I see entrepreneurs make:

More than one in three entrepreneurs have no retirement savings plan.


Did I seriously just type that sentence?

That is one scary proposition.

But that’s the reality, according to online small-business community Manta.

Of the 34 percent of business owners without retirement savings, people have different reasons for not saving for retirement.

  • 37 percent say they don’t make enough profit to save for retirement.

  • 21 percent say they used former retirement savings to invest in their businesses.

  • 18 percent say their business is their retirement savings (i.e. they’ll sell it to fund retirement.)

  • 12 percent say they don’t plan to retire.

  • 12 percent say they don’t see the need to save for retirement.

Most of those are valid reasons, but all of them can and should be remedied.

Well, I just want to have a little conversation with small-business owners right now in five words.

Retirement savings are worth it.

And that’s all I’m saying to the business owners who aren’t saving for retirement.

Short enough conversation for you?

What about entrepreneurs who are saving for retirement?

OK, so I do want to address entrepreneurs who are saving for retirement, too.

Because you’re probably doing it wrong in one way or another.

A while back, I had a little conversation (it was longer than five words, I promise) with a small-business owner on the podcast. He and I talked about some of the mistakes that entrepreneurs make when setting up retirement plans for themselves and their employees.

Most of them stem from ignorance or poor financial education.

Here’s the thing: Between 1992 and 2011, the S&P 500 had an average return of 7.8 percent.

During the same time, real estate investment trusts returned an average of 10.9 percent.

Bonds? Returns of 6.5 percent.

So I asked my friend Mark Minard of the Elevating Beyond Podcast what he thought average investor returns were during that time. He guessed a middling 6-7 percent.

A good guess, but also terribly off.

Over the same period of time, the average investor only experienced a measly return of 2.1 percent.

Mark was floored. And understandably.

Financial advisor fees account for part of that gap, but another big part is the behavior gap.

A lot of entrepreneurs blindly buy stock for companies that have done well recently, assuming the companies will continue to do well.

When it doesn’t go well, that triggers the opposite mentality that it will continue to do poorly and they sell.

They buy high, sell low. Does that sound backward to anyone else?

Education you should provide for you and your employees as an entrepreneur

My conversation with Mark triggered because he found out how much he had been spending on advisor fees for the 401(k) plans he offered his employees.

He decided to switch to a simple IRA because the difference in fees would allow him to offer a 3 percent match for his employees instead of the 1 percent match he had been offering. Without changing his out-of-pocket expenses.

In other words, he didn’t have enough education to make the right decision for him and his employees.

So he came to me to get a better grip on what he should know.

Thing is, when you talk retirement planning, some people stop paying any attention whatsoever.

Eyes glaze over and some people start falling asleep.

So I want to give you the framework of a three-part educational platform that should help you avoid some of the mistakes that are easy to make as a small-business owner.

  1. Explain the value: Retirement savings plans are the most optional of all benefits. You or whoever you hire as a financial advisor should be able to energetically and informatively explain the benefits of contributing to a retirement plan. Don’t know anything about why tax deferral is a good idea? Find someone who does and can explain it effectively.

  2. Teach how to treat retirement savings: Unfortunately, there’s no one-size-fits-all retirement plan. Your advisor should be able to walk individuals through what’s right for them. And yes, that includes you as the person setting up the program for yourself and employees.

  3. Know your timelines: For some that are close to retirement, stability in investments will be more important than someone who won’t retire for another 40 years. The latter doesn’t have to pay one iota of attention to daily financial news. Your education should shepherd you away from getting either too greedy or too fearful with your timeline. Patience is king in investing.

And if you have any deeper questions about how to invest as an entrepreneur or for your team, feel free to let me know.

I don’t bite, and have been known to be helpful. Even if I am a little on the goofy side.

Question of the week:

What's hindered you as an entrepreneur to do more with investing? Answer in the comments below.



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