Survey of Small Business Owners Finds Nearly Half Will Delay Retirement

I'm a small business owner and I'm alarmed when I read this:

Increasingly more small business owners are uncertain about whether or when they will retire as they fail to apply their business and financial skills to their own finances. A recent KeyBank survey found that while small business owners have confidence in their financial planning abilities, the majority pay little attention to personal financial matters, most notably retirement planning.

The survey of 976 small business owners, fielded by Zogby International, shows that they are living contradictions when it comes to finances and retirement. Of those surveyed, 78 percent said retirement planning should be considered by age 30 and almost half (46 percent), said they have their plans set and on track. However, 67 percent believe they will, or could, run out of money in their lifetime.

"There's conflicted confidence in what small business owners say they are doing and what they actually are doing. Consequently there's real concern about how financially prepared they are for retirement," said Marc Vosen, president of Key Investment Services. "While they know what it takes to be in control, many have a laissez-faire attitude when it comes to managing their money."

Asked what they are more likely to do on a regular basis, 32 percent said they are more likely to get a physical exam from a doctor, 33 percent are more likely to get a tune-up from a mechanic, while only eight percent said they would review their finances with an outside expert.

REALITY SETTING IN

When asked to describe their current financial outlook in terms of a Reality TV scenario, 19 percent chose "Survivor." The balance of respondents selected "Amazing Race," "The Apprentice," "Fear Factor," "Extreme Makeover," and "Lost" to best describe their situations.

Reality is beginning to hit home and changing circumstances are causing 40 percent of small business owners queried to reconsider their retirement age. Of those changing their plans, an overwhelming majority (85 percent) are delaying their retirement date. Reasons cited for the delay include the need for more savings (64 percent) and concern about rising healthcare costs (47 percent).

FROM PROCRASTINATION TO PROACTIVITY

Another reason why retirement may be put on the backburner is that small business owners are more concerned with immediate financial problems or issues. When asked "what keeps you up at night", those surveyed put taxes, debt, government regulations and oil/energy costs at the top of the list. Vosen said they may also be procrastinating because financial planning sounds cumbersome, complicated and time consuming, but he adds, it doesn't have to be. He offers the following tips:

1. Zero in and balance various needs
Identify the most important issues and utilize specialized tools to
assess them (e.g., mortgage, debt management, education savings or
retirement)
2. To visualize the future you want, take three simple steps:
1) Estimate the number of years you plan to live in retirement
2) Determine the lifestyle you want to have (similar to your life
today; more simplified; more travel; vacation home etc.)
3) Estimate the annual income you will need to have to live your
desired lifestyle (make a monthly budget, multiply by 12 and
include some unexpected expenses for additional security)
3. Calculate the cost of procrastination
The cost of procrastinating increases exponentially over the course
of only a few years. For example: A person investing $2,000 a year
between the ages of 21 and 30 will earn $347,508 more (by the age of
65) than one who invests $2,000 a year from the age of 30 through 65.
4. Bite the bullet
Review assets with a financial professional to ensure the money and
investments are working as hard as possible, now and in retirement

Fidelity Reports Strong Growth in Retirement Services Business in 2007

According to an article I've read, Fidelity Investments, the nation’s No. 1 provider of workplace retirement savings plans, today reported that recordkept assets in its defined contribution (DC) services business grew 8 percent to $851.4 billion in 2007, from $791.8 billion in 20061. During the same period, Fidelity added nearly 524,000 DC participants, for a total of 13.6 million as of year-end 2007.

Fidelity also reported that assets under administration for its retirement services business, which includes both recordkept and non-recordkept assets of its DC and defined benefit (DB) businesses, rose 8 percent to $918.4 billion at year end, compared with $851.0 billion at the end of 2006.

In addition, Fidelity achieved a monthly record with the addition of over $41 billion in new recordkept assets in its DC business, representing approximately 360,000 new participants in January 2008 alone, the highest such levels since the firm began offering 401(k)s in 1982.

“I’m pleased with the strong momentum we achieved in 2007, which culminated in a record-breaking start to 2008,” said Scott B. David, president, Retirement Services, Fidelity Investments. “We continued to win new DC clients amid an increasingly competitive marketplace, reflecting Fidelity’s commitment to working with employers of all sizes and industries to improve the retirement readiness of their employees.”

Double-Digit Asset Growth in Tax-Exempt and Small Business Segments

Fidelity continued to strengthen its industry-leading position in 2007, with DC recordkept client wins across all types of employers, including Ameren Corporation, Amtrak, the National Hockey League, the Oregon University System and Travelport. Growth was particularly strong for Fidelity in the tax-exempt market, with the addition of over 100 new DC plans and a 15 percent increase in assets.

In the small business market, Fidelity grew recordkept assets by 13 percent and added nearly 1,600 plans, reflecting the increasing recognition among small business owners that offering a retirement plan is not only simple and affordable, but can also be an effective recruiting and retention tool.

Demand for Auto Solutions & Lifecycle Funds Accelerates

The adoption of automatic solutions continued to grow in 2007, with the number of Fidelity-recordkept plans featuring auto enrollment growing nearly five times over the prior year, to nearly 1,700 plans as of year-end 2007. The vast majority (83 percent) of those plans adopted all three of Fidelity’s auto solutions â€" auto enrollment, auto increase and auto default into lifecycle investments.

Although lifecycle investments are not always the default option, they have become increasingly prominent in DC plans. At year-end 2007, more than 4.3 million participants, representing nearly a third of Fidelity’s recordkept DC participants, held some or all of their assets in lifecycle investments, with younger participants leading this healthy trend.

“The Pension Protection Act of 2006 and the Department of Labor's ruling on qualified default investments promise to open a new era in worker retirement savings,” said David. “There is growing evidence that auto solutions can decisively move employees toward greater retirement readiness. Automatic enrollment and savings escalation, together with lifecycle and balanced default investment strategies, can move millions of working Americans into new savings patterns that can dramatically improve their financial security in retirement.”

Continued Gains in Defined Benefit Services

In 2007, Fidelity achieved its 10th consecutive year of participant growth in its defined benefit (DB) recordkeeping business, reaching 4.6 million participants at year-end. The addition of participants was driven by a combination of new plans and ongoing merger and acquisition activity among Fidelity’s existing client base.

Fidelity continued to experience strong demand for plan design modifications among its DB clients, as more employers make changes to their pension plans to comply with the PPA, rules governing balance sheet disclosures and other regulatory changes. The firm expects this trend to continue in the year ahead.

David said that nearly all of Fidelity’s DB recordkeeping clients also rely on Fidelity for DC recordkeeping services and the firm is well-positioned to meet the growing demand for integrated DB and DC solutions among mid-to-large employers.

Record Levels in Stock Plan Services in 2007

As part of its retirement services business, Fidelity’s integrated Stock Plan Services platform supports stock option plans, employee stock purchase plans, restricted stock plans and stock appreciation rights. Fidelity reported record levels for Stock Plan Services in 2007, with SPS recordkept assets reaching an all time high of $102.5 billion2, representing 20 percent growth over 2006.

Driven by the continuing trend toward bundled human resources outsourcing and increasingly complex equity compensation accounting rules, Fidelity now administers comprehensive equity compensation plans for 1.2 million participants in 126 countries.

In 2007, Fidelity managed, on average, 2.3 stock plans per existing stock plan client, up from an average of 2.0 plans per existing client in 2004. This growth was driven by clients consolidating stock plan administration with Fidelity, and by clients adding restricted stock plans to their equity compensation offerings. The vast majority of Fidelity’s stock plan clients also rely on Fidelity for DC recordkeeping services.

How to plan for those golden years?

Thinking of retirement? Try reading these:

What does retirement mean to you? Is it anxiety or happiness? Or both? Retirement actually is a transition. Someone has said, “I'm retired - goodbye tension, hello pension!”

Retirement is transition from work to no work, from Mr. Mehta, General Manager- SBI to just Mr. Mehta; it is a transition from breadwinner to bread dependent. All kinds of transitions have anxiety; be it the first day at a new job, a bride going to her in-laws place or first day at college, there is always a fear of the unknown.

However, it has been usually observed that if financial aspects of transition are taken care off then transition becomes less stressful. The biggest anxiety about retirement is, “Will I outlive money or will money outlive me?”

In first phase of retirement we will discuss how to accumulate wealth for retirement. This is called accumulation phase. Second phase is technically called distribution phase. In this phase, an individual distributes his/her ‘accumulated’ wealth to one’s own self after retirement.

>> Second phase of retirement planning - How to survive on our financial capital?

Golden rule for retirement accumulation is “start early.” The day you earn your first pay, set aside funds for investment. Remember 20s and 30s are your golden savings years. In this period, family responsibilities are least. In all probability you will be staying with parents and hence either there is no household expense or you are contributing a very small portion. Since you are single there are no children responsibilities too. Also your father (parents) could be still working and hence there is no financial commitment towards parents as yet.

From late 30s onwards, there will be home EMI, school fees etc to pay. Though your income would have gone up from what it was when you were in 20s, your expenses would have also kept pace with rising income.

Another advantage of starting early is that you can consider high-risk investments such as equities. Equity markets are place to earn higher returns ‘slowly.’ This is unlike common belief where people feel equities are instruments to earn higher returns very ‘fast.’ As has been written several times, investing in equities is like growing a mango tree. You need to sow seeds, water it and take regular care. It will take years before it starts giving “mangoes.” Lastly there is the benefit of compounding.

Ashit and Hitesh started their career at age 22. Ashit decided to set aside Rs 20000 every year for retirement. He continued saving till he was 29 years. After that he stopped allocation for retirement and started concentrating on other financial commitments. However, he left his initial investment untouched till he retired at the age of 65 years.

Hitesh started planning for retirement at age 29. He kept investing Rs 20000 every year till he retired at the age of 65.

Any guess who would have accumulated more retirement corpus at age 65 years? It is Ashit, who invested Rs 20000 each year between his age 22 to 29. He accumulated Rs 145 lakhs (at an assumed annual interest rate of 12%). While Hitesh who invested Rs 20000 each year from his age 29 to 65 years accumulated Rs 96.89 lakhs

Ideal option in early part of your career is to systematically invest in diversified equity funds. While in 20s and 30s, consider small-mid cap funds and even contrarian funds. Also open your PPF account. Token of money received on your birthday, Diwali, Eid, Baisakhi etc. can be placed in PPF account.

Once you are in 40s, your family responsibilities are highest. Home EMI, car EMI, school fees and even parental responsibilities would start showing up. In 40s you would be in middle to senior management. Chances are your spouse is back to work, after children have grown up to take care of their routine.

Use second income for retirement. Park funds in mid-cap and large cap mutual funds.

50s will be the toughest for retirement planning. You will have to balance between saving/investing for retirement and children’s higher education, their marriage and even ailing parents.

Restrict investment into large cap funds and also consider index funds. Also 5/6 years prior to retirement, start-allocating funds to debt based mutual funds. Depending on the interest rate scenario, consider floating rate funds and/or bond/income funds.

At the time of retirement ensure about 25% or 30% of corpus is into equity and rest is into debt based instruments.

Plan your retirement in 3 simple steps

I have came across these article. Take a look:

The second phase of retirement planning is tougher than first phase. Also very less is written about this phase. This is the phase when we survive on our financial capital.

>>First phase of retirement planning - How to plan for those golden years?

Individuals have two forms of capital - human capital and financial capital. Many of us who work to generate income are human capital. Second form of capital is financial capital. Financial capital is our savings and investment.

We start our career as human capital. Over a period of time we save/invest and create financial capital. When we retire we only have financial capital. We remain human capital as long as we keep working. Moment we cease to work we become dependent on our financial capital

In most cases our human capital is stronger than our financial capital. If you are currently earning Rs 3 lakh per annum, you will require at least Rs 37.5 lakh worth of capital to generate income equivalent to your salary at 8.00% return. Also your salary will keep pace with inflation, while your returns from financial capital may or may not beat inflation.

The reason second phase of retirement is more difficult to plan is because, during this phase

We are dependent on our financial capital
There will not be any kind of addition to already created capital
Financial needs are unique and dispersed
During retirement we require liquidity to meet contingencies. We also require regular income to meet routine expenses and we also want our capital to grow at a rate, which is equal to or preferably higher than inflation.

All the three needs of, liquidity, regular income and growth are like three legs of a tripod. All three are needed for the tripod to stand. Unfortunately all are in opposite direction to each other.

If we place our entire retirement corpus into savings bank account, we will have liquidity. However, there will not be any growth. If entire retirement corpus is in stock than there is growth but income may not be regular. On the other hand if we invest all funds into post-office monthly income scheme/senior citizen saving scheme than there is regular income but liquidity will be at a cost of interest/penalty. (Also read - Bank FDs or FMPs: What must you choose?)

For our retirement tripod to stand, we need all three legs to stand in balanced manner. If any one leg is absent or off balance than our entire retirement will become imbalanced.

Mutual funds as an investment vehicle may well be used for planning retirement finances in second phase. (Also read - How to profit from Mutual Funds?)

Contingency/emergency funds can be parked in either liquid funds or floating rate funds. There are few mutual fund companies, which even give access to the investment through ATM facility.

For regular income, either invest in monthly income plans or choose a debt fund and opt for SWP (systematic withdrawal plan).

Lastly, for growing your retirement corpus, opt for equity funds.

Retirement is wonderful. It is doing nothing without worrying about getting caught at it. However, unplanned retirement is exactly the opposite â€" it is neither wonderful nor worry-free and you will get caught at it!

Don't Let Bad Math Ruin Your Retirement

I read this article today. I'm interested in retirement so take a look at these interesting facts:

Congratulations -- you're a stock market genius! During a lifetime of smart investments, you scrimped and saved your way to a portfolio worth more than $1 million.

Now you're 55 and ready to retire to a sunny island, take the occasional trip to see the grandkids, and still have plenty in the bank to handsomely tip the caddies after they help you birdie that par 5.

No problem ... if you've run your numbers right. But do you have any idea how much you can withdraw from your portfolio to make it all happen?

The price of the good life
If a 10% withdrawal rate sounds reasonable to you, I hope you're ready to go back to work. If the market doesn't perform up to snuff, you could deplete your savings in a mere 15 years. That means that at the age of 70, you could be looking for work again in a market where your skills have one-tenth of their former value. That's not the retirement you hoped for when you said goodbye to the rat race, but it's the retirement you'll get if you fail to prepare and follow a sound financial plan.

A great retirement starts with a solid financial plan in place from the first day of your working life. That said, it's never too late to start planning. Putting together a complete financial plan that determines intelligent asset allocation, manages taxes and fees, calculates responsible withdrawal rates, and accounts for rising costs of living will still put you ahead of the majority of Americans.

Even master investor Peter Lynch wasn't fully ready for the future in 1995 when he wrote that a 7% annual withdrawal rate would be prudent for an all-stock portfolio. He later retracted his analysis when financial columnist Scott Burns proved that Lynch's strategy could make for a most unhappy ending.

Prepare your portfolio
Before you hit the beach, make sure your portfolio has some cover. Consider paring those stakes in volatile winners such as American Superconductor (Nasdaq: AMSC), Synutra International (Nasdaq: SYUT), and China Finance Online (Nasdaq: JRJC). Although each of these stocks has more than doubled over the past year, they also sport five-year betas greater than 2 and have precipitously dropped in the past -- characteristics that investors with short timelines should avoid.

Now, consider reallocating a portion of that newly freed capital to blue-chip dividend payers such as Unilever (NYSE: UL) or PepsiCo (NYSE: PEP) or an index tracker like Vanguard Total Stock Market (FUND: VTSMX). Unlike the volatile three mentioned above, Pepsi is a stable boat with more than 100 years of history, a consistent dividend record, and diverse products.

But since there's no reason for a near-retiree to hold more than 60% of his or her portfolio in equities, just stash the rest in a healthy mix of bond funds such as the Bill Gross-run Managers Fremont (which recently received the Motley Fool Rule Your Retirement stamp of approval) and Treasury Inflation-Protected Securities (TIPS).

Now, for the all-important withdrawal rate. You'll want to draw down your IRAs, 401(k)s, pensions, and other retirement accounts in a way that funds your retirement lifestyle and preserves your net worth. Financial planner William Bengen first showed -- and history has confirmed -- that a 4% annual withdrawal rate is a great place to start. But you'll also want to know which accounts to draw down first, ways to avoid big tax hits, and how to keep pace with the government's minimum distribution requirements. After all, those devilish details are what retirement planning is all about.

Be your own money manager
Preparing for retirement can be a complicated business -- even for great investors -- if you don't put together a proper plan. Running the numbers and experimenting with different withdrawal scenarios will take the guesswork out of your future and help you avoid that dangerous scenario where you run out of cash.

No matter how complicated it gets, always remember that you are the best manager of your own money. You have your own best interests at heart, you won't charge yourself fees, and you're willing to devote every minute of your time to your future. These put you ahead of most "professional" money managers from the get-go.

But even the most Foolish Fools need some retirement help, which is why we keep former Wall Street financial planner Robert Brokamp around. To start building your financial plan, try a 30-day free pass to Robert's Motley Fool Rule Your Retirement newsletter service. You'll enjoy access to all back issues, interviews with expert money managers, retirement calculators (including one for withdrawal rates), how-to guides, and the Fool's dedicated discussion boards. Click here to learn more. There is no obligation to subscribe.

See what I mean? We need this for our future!