Small Business Labs

Benefit Declines Makes Self-Employment More Attractive

It's no surprise that companies continue to cut workplace benefits.  According to a U.S. News article: "Employers have significantly cut many of the benefits they offer to workers over the past five years."

The article goes on to list 21 workplace benefits that are going away, with reductions in retirement and health care benefits leading the way.

Most people looking at becoming self-employed or starting a small business go through a risk/reward analysis of their choices.  This process is based on their views of the advantages and disadvantages of traditional employment versus self-employment.

We've found that corporate benefits tend to be overvalued in this analysis.  

People think employer benefit replacement costs are higher than they are, or that certain benefits can't be replaced when they can.  We've also found employer retirement and health benefits tend to be the most valued - and overvalued - in the evaluation process. 

There are a lot of other factors people include in their analysis - work/life balance, job security, advancement potential, social factors, etc. - but benefits matter. 

So when corporations cut benefits - and in particular cut health and retirement benefits - they increase the attractiveness of self-employment or starting a business. 

We don't see the trend towards lower benefits changings.  This means more people are likely to find self-employment or starting a small business more attractive. 

Tim Berry's Baby Boomer Un-Retirement - Part 2

Several years ago (have I really been blogging that long?) I posted on Tim Berry's un-retirement.  Here is the main section of that post:

"I recently traded emails with well-known business planning expert and blogger Tim Berry.  I was curious how he found the time to do so much work.  His answer was he was retired.

This came as quite a surprise to me since from the outside it looks like he runs a media empire.  Tim has multiple blogs, a consulting practice and a software company.  He actively participates in webinars, writes books, speaks at conferences, writes for traditional media, etc.,etc., etc. 

While Tim may not be the typical baby boomer, he is a great example of our generation's approach to retirement.  Tim and others like him are why we are - somewhat obviously I think - forecasting that retiring boomers Will start and work in small businesses in growing numbers."

Tim has written a follow-up article on his un-retirement - How to Rewrite Your Job Instead of Retiring - over at Small Business Trends.  It is interesting to see his perspective after 3 years.  He is very enthusiastic about his retirement because he found something he loves doing.  Key quote:

"For me it was writing, blogging, speaking, etc. This blog posts, several blogs … in fact since I named the new CEO in April of 2007 I’ve done slightly more than 2,000 blog posts, and three books. And speaking, and teaching."

I think all boomers should read Tim's article as part of their retirement planning. 

Micro-Businesses and Retirement

The National Association for the Self Employed released a survey in May (OK I'm a bit late on this) showing that the majority of micro-businesses (defined by NASE as 10 or fewer employees) owners and employees are unprepared for retirement.  From the press release:

"a large majority of owners and employees of America's micro-businesses do not have access to retirement plans and are financially unprepared for retirement. More than 3,000 owners of companies with 10 or fewer employees participated in the survey."

The survey shows that 80% of all micro-businesses surveyed do not offer any kind of retirement plan and that the primary barrier - listed by 62% of the respondents - is the cost of administering and contributing to a retirement plan.

What is really interesting to me is despite the huge amount of financial institution marketing money spent trying to attract small business retirement accounts, 40% of the respondents are not familiar with and/or understand the retirement plan options available.

While the cost of contributing to retirement is clearly an issue for many, plan adminstration should not be a barrier.  My micro-business retirement plan (covering myself and my partner) takes about 2 hours a year to administer.  This appears to be an education problem to me.  I guess the financial industry needs to spend even more money marketing small business retirement plans. 

Related to this, Anita Campbell at Small Business Trends lists retirement as one of the three things keeping entrepreneurs awake at night. 

Gallup on "This Is Not Your Father's Retirement"

Gallup recently released a set of survey results on retirement.  Key quote from the report:

According to Gallup's annual Personal Finance poll, conducted April 2-5, 2007, nearly three-quarters of nonretired Americans say they plan to rely on income from part-time work after they "retire," to help fund their golden years. This includes 21% who say part-time work will be a major income source for them, and another 52% who say it will be a minor source.

This is quite a shift from current retirees, with 78% of current retirees reporting that part or full time work is not a source of retirement income.  This survey echos the research we've done, especially on boomers and retirement.  Boomers both want and think they need to continue working in retirement.  They want to work to stay involved, be active, and continue to contribute to society.  At the same time, many boomers think they will need to work to afford a comfortable retirement.

In terms of small business, later retirement ages and boomers working in retirement will have several impacts.  First, since small business creates most of the new jobs in the US most of the jobs available to retirees will be small business jobs.  Second, we think an increasing number of older Americans will start part-time and personal businesses (sole proprieterships or businesses with no employees beyond the owner).  They will do this for both emotional and financial reasons - an greatly increase the small business formation rate for older Americans.