NEW YORK (AP) — Kari Warberg Block calls it her day of reckoning. It was the day 10 years ago that she realized she had saved nothing for her retirement.
"I started thinking about all the money that had run through my hands over the years, millions of dollars," says Block, owner of Earth-Kind, a manufacturer of rat and mice repellent. "I was sick to my stomach."
For many small business owners, the golden years aren't looking so shiny. Many have devoted so much time and money to their businesses that they have failed to plan for retirement. Catch-up plans for these owners usually consist of aggressively putting money aside, or taking another big risk: Planning to sell their companies one day to fund their retirement.
Block, 50, who has owned four companies over the years, didn't start saving for retirement until she was unable to get a loan for Earth-Kind in 2003, three years after she started the company, based in Bismarck, N.D. Her bank asked for a statement showing her personal financial holdings, including savings and investments. She only had an annuity she had purchased when she was 18, and a family inheritance. She had never taken money for her retirement out of the companies she had previously owned, which included bookkeeping and delivery services.
"I looked at the personal finance statement and realized, there's nothing here," Block says. Bankers want to see an owner's personal finances because they believe that people who handle their savings and investments well will also do a good job running their companies and be a good credit risk.
Block sought advice on how to save from a Small Business Development Center, a government-sponsored office that gives free counseling to business owners. She also got help from investment brokers, asset managers, an accountant and an attorney. And she began a savings regimen. She contributes 3 percent of her salary to her retirement account, an amount matched by the company. And 100 percent of any distributions she takes from the business also go toward retirement. Every morning, she spends 10 minutes going over her finances.
Before Block began saving she was in good company. Sixty percent of small business owners surveyed by American Express say they're not on track to save the money they need for retirement. Seventy-three percent said they're worried about their ability to save for the lifestyle they want in retirement.
The recession made saving more difficult, if not impossible, for many owners. The downturn, and the plunge in lending to small businesses, during the past five years forced many owners not only to put saving on hold, but also to use personal assets like bank accounts, stocks and mutual funds to keep their companies running. In the first quarter, a survey of small business owners by Pepperdine University and Dun & Bradstreet Credibility Corp. found that 42 percent had used personal assets to fund their companies. Nearly 80 percent of those owners dipped into their savings or investments. A year earlier, 46 percent used personal assets, and 68 percent turned to savings and investments.
The recession forced Len Polonsky to stop saving. Revenue slid at his medical and office supply company, MedStock. He cut more than half his staff of 20 through layoffs and attrition and reduced his own salary by more than 50 percent. He also he stopped drawing from the company's profits to fund his retirement plan. Having enough money to pay the company's other expenses was the priority.