Client Service April 20, 2016

Small-Business Owners Remain Prime Candidates for Advice

Small-business’ equity is rarely as liquid, or even as valuable, as its owner expects, especially when one needs to cash it out quickly. 
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Small-business owners planning to exit their businesses for retirement or other reasons may be in for a rude awakening when looking to cash out their equity, according to new survey research from Securian Financial Group.

“While 54% of business owners plan to leave their business in the next 10 years, 72%  have taken no exit planning action,” the firm warns. The survey results further show the “vast majority of small-business owners are unprepared for exiting their businesses. The financial ramifications, especially for business owners counting on their companies to fund their retirement, could be significant.”

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The findings are in line with the most recent PLANADVISER Micro Plan Survey, which shows small-business owners are slowly but noticeably wising up to the retirement-related risks their businesses face—especially regarding the ability of their employees to retire on time and with sufficient savings. Perhaps one of the most telling findings from the 2015 edition of the survey is the increase in the number of retirement plans that work with an adviser and have $5 million or less in plan assets. That statistic has risen considerably in the past year to 65.9%, up from 52.0%, indicating that more small-business owners are aware of their need for guidance and are turning to advisers for help.

It may also suggest that advisers are finding worthwhile and profitable opportunities in this market, for example by sitting down with the small-business owner to work on their own retirement transition plans. Complicating the matter, this type of “cross-sold” work is one of the main points of content in the Department of Labor’s new fiduciary rule.

Andrew O’Brien, who directs Securian’s business owner client solutions group, says that “for most small-business owners, the business is by far their largest asset. Not properly planning for the sale or transfer of their business can leave a lot of people—including the business owner—in a very difficult position.”

According to the survey, just about half of small-business owners “want to sell their business to a partner, key employee or third party, while 37% want to transfer the business to family members.” Channing Schmidt, who leads a team of Securian associates who advise financial professionals and their business owner clients on advanced planning, warns that such a sale or transfer will inevitably involve “multiple financial and legal steps that tend not to work well for the owner when rushed.”

“A written exit plan developed by a team of experts working in concert with the business owner is the best way to prepare for a successful transition,” he concludes.  

Six hundred small-business owners with an average of 27 employees and annual revenue ranging from $250,000 to more than $20 million were surveyed in August and September 2015 for the Securian Small Business Owner Life Stage Study. More information is available at www.securiannews.com. 

Data & Research April 20, 2016

Millennials Have False Sense of Retirement Security

Millennials feel hopeful about retirement, despite the fact that many of them haven't saved at all or don't know their net worth.
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About one in five Millennials feel hopeful when looking at their retirement savings account balance, yet 25.34 million of them haven’t even started saving, according to a Personal Capital Retirement Readiness Survey.
The survey finds that 40% of Millennials don’t have a single retirement savings account, and 73% don’t know their net worth. Despite this, 34% of Millennial retirement savers report feeling hopeful (more than any other emotion) when looking at the balance of their retirement savings account. This disconnect shows that Millennials may have a false sense of security around their current savings and are at risk of not reaching their retirement goals.

“Millennials are oblivious to the $14 trillion retirement crisis facing America,” says Personal Capital CEO Bill Harris. “They’re dangerously assuming that retirement planning can start tomorrow, instead of today. We’ve found that Millennials are banking on working just 15 years, and many plan to live on inheritances during retirement—it’s delusional … But there’s hope if we meet Millennials where they are now, whether that be battling student loan debt or searching for easier tech-driven solutions.”

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According to the survey findings, Millennials expect to work for only 15 years and save $445,687 for retirement, and they anticipate receiving an average of $1.06 million from an inheritance—twice as much income as from their paychecks.

Of course, not all Millennials are as optimistic about their retirement savings. Twenty-six percent of those who have already started saving say they feel uncertain, another 26% feel anxious and 15% feel hopeless when looking at their retirement account balances.

More Millennial men than women report feeling emotional about their retirement savings account balances (63% vs. 43%, respectively), whether that means feeling hopeless, hopeful or confident. Twice as many Millennial men as women feel hopeless when looking at their retirement savings balance (12% and 6%, respectively). Despite this, Millennial men are almost twice as likely as women to say they feel confident (25% vs. 12%, respectively) and both groups report feeling hopeful as well (24% vs. 18%, respectively) when they look at their retirement savings account balance.

The study also finds that three times as many Millennial men than women with a retirement savings account would take money from their retirement savings early to pay for a big purchase including a vacation, boat, car or wedding.

NEXT: Taking action

Millennials are interested in retirement solutions tailored to their lifestyle. More than half (54%) of Millennials say they would be likely to seek a professional’s advice when investing. They also want fast, convenient ways to view their account information. Millennial retirement savers are more than twice as likely than people age 45 and older to say if they were able to access their retirement savings account on their mobile device, they would check it daily (15% vs. 6%, respectively). The survey finds that 6% of Millennial retirement savers don’t ever look at the balance of their retirement savings accounts.

“Mobile banking led the way for everyday financial literacy, and soon mobile retirement planning is going to catch up,” Harris says. “Once people had the ability to interact more with their finances, they did—and the ripple effect is echoing loud and clear: 94% of Millennial retirement savers want mobile access to their retirement accounts. The need to demystify retirement is colossal, and when mobile access becomes the industry standard, financial planning on all fronts will finally see a full revolution.”

Personal Capital provides retirement planning tools and advisory services. To learn more about its retirement planning tools, click here.

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