For many small business owners, the best retirement plan has been the sale of their own small business to an employee or their children. Often, the deal gives them some cash and ongoing income while guaranteeing the buyer continuing support and customer goodwill -- an arrangement that works for everyone.
But with businesses where the owner IS the business and the value of the bricks and mortar isn't significant, a sale may not compensate the seller enough to pay for his retirement. Or, perhaps, there is no buyer. "Given the economic headwinds in recent years, we've seen a lot of people looking at other (retirement) options," says Brian Hogan, director of small business retirement products for Fidelity Investments.
For many small business people, that has translated into a need to save more aggressively for themselves and for their employees. Fidelity says that among its sole proprietor and partnership retirement-business clients, 80 percent have a solo 401(k). The average value of these plans rose 83 percent since 2008 from $75,275 to $137,447 in 2013.
"It mirrors what we are seeing in the larger 401(k) space -- these businesses have more confidence that the economy is coming back," Hogan says.
Other sorts of small business retirement plans also saw increases. Simplified Eemployee Pension IRA, or SEP IRA, and SIMPLE IRA balances rose by 92 percent to $84,410 and 100.8 percent to $36,235, respectively.
Returns were good, but contributions drove a large part of the increase. Small business owners with individual 401(k)s contributed an average of $21,661 in 2013. That was 21 percent more than they contributed in 2008. Employer contributions to SEP IRAs increased 17 percent from 2008 to $13,814 at the end of 2013.
Average contributions to SIMPLE IRAs increased 7 percent to $6,162 by the end of 2013. While this number may look significantly smaller, Hogan says Fidelity's customers for SIMPLEs tend to be blue-collar businesses where the overall profit levels are fairly low. Fidelity sees this increase as good news.
"The fact that they are concerned about retirement is a good sign," Hogan says.
If you are a small business owner, how's your retirement planning? Do you have a small business retirement savings plan?
Next: Consider the retirement gap.