Retirement, Recessions and Older Small Business Owners

Full Report

Research Summary

December 2012                    No. 400

Retirement, Recessions, and Older Small Business Owners

By Tami Gurley-Calvez, Kandice Kapinos, and Donald Bruce,
Merriam, Kansas, 66203. 62 pages. Under contract number SBAHQ-11-M-0207.

How well are older small business owners prepared
for retirement? How well do they fare during recessions
compared to employees in the same age group?
This study uses publicly available panel data to
examine the retirement savings decisions of small
business owners nearing retirement age, with particular
emphasis on the role of economic downturns.
Understanding whether small business ownership
influences individuals’ ability to weather recessionary
periods with respect to their retirement planning
will inform policymakers as well. If older small
business owners’ retirement savings are affected to a
great degree during recessions, there might be a need
for policy interventions to address this gap.

The researchers explore a variety of factors that
might lead to differences in retirement plan preparation
and savings behavior.1

Overall Findings

The researchers’ key findings are that small business
owners nearing retirement (over age 50) are
significantly less likely than employees to have pension
or retirement plans, including 401(k)s, on their
current job. This finding occurs regardless of the
extent of self-employment in an individual’s career
(whether part-time, full-time or for a short or long
period). At the same time, small business owners
tend to have significantly greater IRA and Keogh
plan savings than employees, even after controlling
for key sociodemographic characteristics. A third key
finding is that small business owners and employees
have similar retirement savings behavior during
recessions; the probability of having a pension and
the value of IRA/Keogh accounts are largely stable
through recessions. Other findings include:

• Older small business owners invest their retirement
savings similarly to older employees. They do
not seem to be more likely to choose equities over

• Older small business owners do not appear to
start to save for retirement sooner than employees,
but the researchers were only able to examine this for
one year.

• Older small business owners tend to report
thinking about retirement less frequently than

• The small business owner has a significantly
later expected retirement age than an employee. In
fact, the small business owner may be less likely to
retire all together. Specifically, small business owners
in 2010 reported that they would retire on average
at age 72.6, while the expected retirement age
among employees was 68.4.

• Finally, small business owners over age 50
exhibit greater financial knowledge about concepts
such as inflation, interest calculations, and general
financial literacy than employees. However, in some
models these differences are quite small and not statistically
significant, but still suggestive.

• These findings add support in favor of small
business assistance programs as a way for individuals
to gain valuable financial skills. It is possible that
facilitating small business ownership could lead to
greater retirement preparation and greater retirement
income security.

Scope and Methodology

The researchers use several methods to address
whether small business owners over age 50 save differently
for retirement compared to their employees
and how recessions affect their behaviors. A comprehensive
set of summary statistics is presented in
which they compare business owners and employees
as well as examine trends over time, with particular
attention to recessionary time periods. Next, they use
repeat cross-section regression techniques to assess
whether self-employment experience (either currently
or in the past) affects savings behavior. This
approach allows them to test whether differences
remain after controlling for other factors that may
influence savings and retirement behavior. Finally,
they 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 2001 recession and the Great
Recession (December 2007 to June 2009).

The researchers use the Health and Retirement
Study (HRS) from 1992-2010 for the analysis. These
data are collected every two years and include new
cohorts every six years. The HRS is a longitudinal
nationally representative dataset of the U.S. 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

Approximately one in eight HRS respondents
(12.3 percent) were mostly self-employed over their
working lives as of 1992, but this share falls to about
8 percent by 2010. Nonetheless, the presence of a
large number of mostly self-employed workers in the
HRS enables the researchers to get a better picture
of the impact of longer-term or more intensive self-
employment experience on retirement preparation.

The wealth of information within the HRS regarding
current and prior jobs allows the researchers
to construct a variety of indicators of current and
previous self-employment experience including
current self-employment status, full-time and part-
time involvement, and self-employment tenure over
working years. The HRS data also include a variety
of retirement preparation and financial literacy measures.
The researchers limit their analysis to fourteen
selected outcomes that provide a reasonably diverse
view of retirement preparation and financial literacy
among HRS respondents.

The analysis first investigates differences in the
selected retirement preparation and financial literacy
measures by self-employment status in a series of
cross-tabulations. The researchers then estimate a
series of multivariate cross-sectional regressions that
allow for the control of important individual-level
characteristics. A separate cross-sectional regression
is estimated for each pair-wise combination of outcome
measures and self-employment measures. The
matrix of control variables includes the respondent’s
age (in quadratic form to permit nonlinear effects),
a marriage indicator, indicators for educational
attainment, and indicators for region of residence.
Throughout the analysis the researchers pay particular
attention to any observed interruptions in patterns
or trends during recessionary years, namely 2002 and
2010 (the Great Recession), as these survey waves
include data for the previous year.

This report was peer-reviewed consistent
with Advocacy’s data quality guidelines. More
information on this process can be obtained by
contacting the director of economic research by
email at or by phone at (202)

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1. Note that the researchers use the terms “self-
employed” and “small business owner” interchangeably;
and “wage-and-salary worker,” “employee,” and “non-
business owner” interchangeably.


This report was developed under a contract with the Small
Business Administration, Office of Advocacy, and contains
information and analysis that was reviewed and edited by
officials of the Office of Advocacy. However, the final
conclusions of the report do not necessarily reflect the views
of the Office of Advocacy.