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Retirement, Recessions and Older Small Business Owners

62 Pages Posted: 12 Jan 2013  

Tami Gurley-Calvez

University of Kansas Medical Center

Kandice A. Kapinos

RAND Corporation

Donald Bruce

University of Tennessee, Knoxville

Date Written: December 11, 2012


Retirement planning is fraught with uncertainty including preparing for future health needs, longevity, taxes, and inflation. This planning is further complicated in recessions, when short-term financial needs might trump longer-term savings, and particularly in the last recession when different types of assets (e.g. housing) were impacted more by the economic downturn. This report examines how older small business owners prepare for retirement and how they fare financially during recessions compared to their wage and salary counterparts. We use a publicly available panel data set to examine the retirement savings decisions of self-employed and non-self-employed individuals nearing retirement age with particular emphasis on the role of economic downturns.

We examine specific elements of retirement wealth, preparation, and financial literacy for self-employed relative to wage and salary workers. Previous research suggests that small businesses ( fewer than 10 employees) are less likely to offer pension plans and that business owners have low rates of retirement account ownership and contributions (Dushi, Iams, and Lichtenstein 2011; Lichtenstein 2010). Additionally, we assess whether recent recessions impacted the retirement preparation of business owners to a greater or lesser degree than non-business owning households. Finally, we explore several possible causes for differences in retirement preparation between older small business owning households and their non-business owning household counterparts, including their degree of financial literacy.

Given our focus on older Americans, we utilize the Health and Retirement Study (HRS), a longitudinal, nationally representative dataset of the US population of individuals over age 50 that includes a rich set of data on labor force status and history, income, assets, pension plans and other health and psychosocial measures collected biennially from 1992 to 2010. We use several methods to address whether small business owners save differently for retirement and how recessions affect their behavior. First, we present a comprehensive set of summary statistics in which we compare business owners and non-business owners as well as examining trends over time, with particular attention to recessionary time periods. Next, we use repeated cross-section regression techniques to assess whether self-employment experience (either currently or in the past, i.e., over the 1992 to 2010 HRS sample period) affects savings behavior. This approach allows us to test whether differences remain after controlling for other factors that may influence savings and retirement behavior. Finally, we compare regression results across time in order to investigate the extent to which the impact of self-employment experience varies over the business cycle, including the recessionary years 2001 and 2009.

Our results suggest that the self-employed are significantly less likely to have an employer provided pension (including basic pension or retirement plans and 401(k)s), consistent with the literature. However, some of this difference is offset as the self-employed have significantly greater amounts in IRA/Keogh savings vehicles. We find that the probability of having a pension and the value of IRA/Keogh accounts are largely stable during recessionary years. The results also suggest that the self-employed invest similarly to their wage and salary counter-parts when covered by private plans over which they have some control over portfolio allocation. In other words, self-employed individuals do not seem to be more likely to choose equities over bonds as compared to non-self-employed individuals. This might seem counter to the general notion that small business owners are risk-takers, but is consistent with recent re-search. The finding that older self-employed behave similarly to their wage and salary counter-parts and that there is stability in behavior through recessionary periods suggests that older self-employed and non-self-employed households have similar retirement preparation concerns and needs.

One area where the older self-employed are significantly different is in their level of financial knowledge. The self-employed are generally more informed about concepts such as inflation, interest calculations, and general financial literacy than their non-self-employed counterparts. In some models, these differences are quite small and not statistically significant, but still suggestive. While these findings are not surprising if we think that self-employed individuals, especially when they are older, are more likely to be exposed to this knowledge through the day-to-day tasks associated with running a business, more years of data are needed to understand fully the causal path and to determine whether this increased financial knowledge translates into better retirement preparation.

These findings add support in favor of small business assistance programs as a way for individuals to gain valuable financial skills. More research is certainly needed, but by this line of reasoning, it is possible that facilitating small business ownership could lead to greater retirement preparation and greater retirement income security.

In general our research indicates that the self-employed over age 50 expect to retire at older ages and have larger balances in their retirement savings accounts than their wage and salary counterparts. While these characteristics might make it easier for these older self-employed to weather recessionary financial storms, our analysis does not reveal key differences in outcome variables during recessionary years. That is, we find that older self-employed differ from their wage and salary counterparts in important ways including financial literacy, but these differences are not exacerbated or lessened during recessionary periods. A key area for further re-search is a closer examination of wealth portfolio allocations over time to see if the increased levels of financial literacy among the self-employed lead to fewer financial losses during recessions or different rates of financial recovery following a recession.

Keywords: self-employed, entrepreneurship, retirement, recessions, financial planning, portfolio choice, saving

JEL Classification: J26, L26, J22

Suggested Citation

Gurley-Calvez, Tami and Kapinos, Kandice A. and Bruce, Donald, Retirement, Recessions and Older Small Business Owners (December 11, 2012). Available at SSRN: or

Tami Gurley-Calvez (Contact Author)

University of Kansas Medical Center ( email )

Jayhawk Blvd.
Lawrence, KS 66045
United States

Kandice A. Kapinos

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

Donald James Bruce

University of Tennessee, Knoxville ( email )

Center for Business and Economic Research (CBER)
1000 Volunteer Blvd., Stokely Management Center 72
Knoxville, TN 37996-4334
United States
(865) 974-5441 (Phone)
(865) 974-3100 (Fax)


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