How Do I... Retire

Small business owners face huge challenges when preparing for a secure retirement since the burden of savings likely rests entirely on them.

About 78 percent of respondents to a survey commissioned by the National Association for the Self-Employed do not offer a retirement plan.

"A lot of these micro business owners themselves have IRAs, or personal 401(k) plans, but they haven't created a benefit or retirement plan via their business," said Kristie Darien, executive director for the group's legislative office. "The biggest issue is the idea of cost - both to administer and to save."

A Simplified Employee Pension plan or SEP was named the most common type of retirement plan for small business owners, according to the survey, which was released in May. It was selected by about 43 percent of those polled.

The rest invested in either a regular 401(k) or a SIMPLE 401(k), which is considered easier to administer.

The study also found that the majority of small-business income is spent on daily expenditures and health care. About 83 percent of those surveyed said their income is used for needs such as food, housing and utilities; and about 34 percent said they spend additional income to cover health insurance or medical expenses due to an illness or medical condition.

"People are saving, but they are not saving enough," said Darien. Nearly 13 percent of respondents say they have no retirement savings, while about 26 percent said they have less than $50,000 tucked away for retirement. That's an eye-opening figure when considering the median age of respondents was 48, she said. About 29 percent of all respondents said they will need at least $1 million in retirement savings before they can retire.

Darien said that on the "to do" list of small business owners, retirement seems to be hurting the most. That's often because sole proprietors and other business owners tend to address today's crises, but don't focus on long-term planning.

"There are a lot of great vehicles out there for people to save -- either through their business or on their own," said Darien. "But if you don't have the money, what good are they?"

Sixty-two percent said they couldn't "afford to administer or contribute to a retirement plan," while 21 percent said they didn't understand which options were available to their business.

The poll focused on micro entities with fewer than 10 people and a median household income of $62,500, although respondents' annual income ranged from less than $15,000 to more than $250,000.

Here are some resources and tips to help begin the retirement plan process. Additionally, The Washington Post ton Wednesday ran a special package on retirement issues that includes helpful information and stories focused on the "fifty-plus" crowd.

* If you use an accountant for your taxes, ask your CPA about different plans and the benefits of starting one. About 57 percent of respondents to the NASE-commissioned study said they received recommendations from their CPA or financial adviser on which plan to choose. The American Institute of Certified Public Accountants offers information on how to find a CPA.

* Put even a small amount of money toward retirement on a regular basis. "Even if you can put just $100 a month away into a retirement plan, you'll be better off down the line," said Darien. "If you're business is having a good year revenue-wise, put some more money away."

* Determine what sort of lifestyle you may want when you retire. Do you want to travel or live in an active-lifestyle community? That decision could affect how much you need to save.

Resource Links:

* IRS information on SEPs and SIMPLE plans.

* Department of Labor

* ShopTalk offered by the NASE is available to all micro business owners, not just association members. You can call or e-mail a business consultant, and they will respond to you request within 24 hours.

* Simple401k, not to be confused with the IRS program, helps compare and explain different plans.

By Sharon McLoone |  September 13, 2007; 7:00 AM ET How Do I...
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