Financial Viability and Retirement Assets: A Look at Small Business Owners and Private Sector Workers

Jules Lichtenstein, Ph.D., December 2012


Income security during retirement may depend on whether you were a business owner or a wage and salary worker. The accumulation of differential patterns of assets and participation in individual retirement plans can be a function of your status as a business owner or an employee. An employee has the ability to participate in an employer-sponsored retirement benefit plan, if offered. Some business owners, on the other hand, may develop successful businesses that could lead to the accumulation of wealth. The relative success of business owners has consequences for their retirement security.

Both owners and workers face financial vulnerability as they save for retirement. The study examines the level of financial vulnerability of small business owners—those who earn a high percentage of their income and hold a high percentage of their net worth in business income and assets. It also analyzes the retirement assets of business owners and private sector workers. One aspect of financial vulnerability that could affect both owners and workers is having an underwater residential mortgage. A comparison is made with those who have positive mortgage equity.

Overall Findings

The researcher’s key findings suggest that business owners are significantly less likely to hold retirement assets (IRA and Keogh accounts as well as 401(k) and Thrift accounts) than private sector wage and salary workers, controlling for firm size and other factors. Small business owners with retirement accounts are more likely to hold lower amounts of such assets than their wage and salary counterparts.

An important concern emerges with respect to small business owners. Financially vulnerable small business owners—those who hold a high percentage of their net worth in business assets—are less likely to invest in retirement assets than owners whose net worth is less vulnerable. On the other hand, income vulnerability does not have a significant impact on whether small business owners hold retirement assets. Both net worth and income vulnerability, however, had a significant effect on the amount of retirement assets accumulated by small business owners. On both dimensions, financially vulnerable small busi- ness owners were significantly more likely to hold a smaller amount of money in these assets than less financially vulnerable small business owners.