So many Americans are unprepared for the costs of retirement that some predict a looming crisis. But small business owners and their employees who put money into retirement accounts might be in better shape than most.
In an analysis of the balances of 200,000 small business accounts that utilized its SEP-IRA, Self-Employed 401(k), or SIMPLE-IRA plans, Fidelity Investments found that the plans saw an average balance increase of 20 percent between January 2007 and December 2012. Since a 2008 low point, balances have jumped an average of 64 percent, the brokerage reports.
The Employee Benefit Research Institute reported last month that less than half of American workers “appear to be taking the basic steps needed to prepare for retirement.” While only 13 percent of American workers are “very confident” they will have enough savings to live comfortably after stopping work, only 66 percent report that they or their spouses have saved for retirement at all, according to EBRI’s 2013 Retirement Confidence Survey.
Those who contribute to small business retirement accounts, however, have increased their contribution rates as the economy has emerged from the financial crisis, according to Fidelity. “The recent recession had a significant impact on many small businesses and continues to pose obstacles in today’s economy, but we are encouraged to see that both owners and their employees have remained committed to saving for retirement,” Ken Hevert, vice president, Fidelity Investments, said in a statement this morning.
To be sure, many small businesses do not offer their employees retirement savings benefits, and many owners put all of their spare revenue back into their businesses rather than a retirement account.
But Fidelity reports that among those who do save for retirement, the news is promising. Those using Self-Employed 401(k)s increased their annual contributions an average of 21 percent to $20,950. Employer contributions to SEP-IRAs increased 14 percent from 2007 reaching $13,250 in 2012. Average annual contributions to SIMPLE-IRAs increased four percent during that period to $6,000.
Those bigger contributions combined with a market rebound during the same period has resulted in higher balances for small business accounts. The average balance in Self-Employed 401(k) plans went from $95,800 in 2007 to $119,500 in 2012. SEP IRA balances increased to $71,300, and SIMPLE IRA balances increased to $31,100.
Compare that to the 57 percent of workers surveyed by EBRI who reported less than $25,000 in total household savings and investments (excluding the value of their primary homes and any defined benefit pension plans).
One thing that remains unclear is whether even the amounts being socked away in small business accounts will be enough. According to EBRI, “One reason that retirement confidence has remained low despite a brightening economic outlook is that some workers may be waking up to just how much they may need to save." Many believe they need to save more than 20 percent of their income for a financially secure retirement.
Perhaps one thing small business owners have going for them is that no one is going to tell them when it's time to retire.