Darryl L. DePriest is the seventh presidentially appointed and Senate-confirmed Chief Counsel for the Office of Advocacy.
Prior to joining the Small Business Administration Office of...
December 2012 No. 401
Financial Viability and Retirement Assets: A Look at
Small Business Owners and Private Sector Workers
Jules Lichtenstein, Ph.D., Senior Economist
Office of Advocacy, Small Business Administration
Income security during retirement may depend on
whether you were a business owner or a wage and
salary worker. The accumulation of differential patterns
of assets and participation in individual retirement
plans can be a function of your status as a
business owner or an employee. An employee has
the ability to participate in an employer-sponsored
retirement benefit plan, if offered. Some business
owners, on the other hand, may develop successful
businesses that could lead to the accumulation of
wealth. The relative success of business owners has
consequences for their retirement security.
Both owners and workers face financial vulnerability
as they save for retirement. The study examines
the level of financial vulnerability of small business
owners—those who earn a high percentage of
their income and hold a high percentage of their net
worth in business income and assets. It also analyzes
the retirement assets of business owners and private
sector workers. One aspect of financial vulnerability
that could affect both owners and workers is having
an underwater residential mortgage. A comparison is
made with those who have positive mortgage equity.
The researcher’s key findings suggest that business
owners are significantly less likely to hold retirement
assets (IRA and Keogh accounts as well as
401(k) and Thrift accounts) than private sector wage
and salary workers, controlling for firm size and
other factors. Small business owners with retirement
accounts are more likely to hold lower amounts of
such assets than their wage and salary counterparts.
An important concern emerges with respect to
small business owners. Financially vulnerable small
business owners—those who hold a high percentage
of their net worth in business assets—are less likely
to invest in retirement assets than owners whose net
worth is less vulnerable. On the other hand, income
vulnerability does not have a significant impact on
whether small business owners hold retirement assets.
Both net worth and income vulnerability, however,
had a significant effect on the amount of retirement
assets accumulated by small business owners. On
both dimensions, financially vulnerable small busi-
ness owners were significantly more likely to hold
a smaller amount of money in these assets than less
financially vulnerable small business owners.
• Having an underwater mortgage did not have a
significant effect on the likelihood that a small busi-
ness owner invested in retirement assets or on the
amount of retirement assets they accumulated.
• On the other hand, having an underwater mort-
gage increases the likelihood that private sector
workers had a retirement account and increases
the amount that these workers invest in retirement
• Owners of smaller businesses (fewer than 25
workers) were significantly less likely to invest in
retirement assets and had lower amounts than
owners of larger firms.
• The data depict the differences in asset allocation
choices between small business owners and wage
and salary workers and the use of different assets for
• Wage and salary worker retirement plan behavior
exhibited a similar pattern with respect to employ-
ment in smaller versus larger firms.
• The study’s findings suggest the following:
- There is a need to reexamine federal rules and
regulations written to equalize the benefits within
companies between workers and highly compensated
individuals/owners to help both business
owners and wage and salary workers increase their
ownership and accumulation of individual account
- In addition, new policies to expand automatic
enrollment to owners as well as workers may need
to be considered.
Scope and Methodology
This study uses the 2008 Panel of the Survey of
Income and Program Participation (SIPP) to examine
how business owners differ from private sector
workers in the retirement assets they hold. The reference
period for these data is August 2009 through
November 2009, a period one month after the official
end of the Great Recession. A key focus of the
analysis is the influence of wealth holdings on retirement
assets. The SIPP has information about business
owners as well as about the businesses owned
by individuals. Details about firm size and firm age
are available. SIPP’s Assets and Liabilities Topical
Module and the Real Estate Topical Module also
contain financial, housing, and business data. This
study also looks at wealth reported for several different
property and financial assets.This analysis, however,
is unable to measure several important categories
of retirement wealth including Social Security
retirement benefits and defined benefit pension plan
In this paper, several measures of financial viability
for business owners and private wage and salary
workers are considered. Home equity is the key measure
used to assess the financial health of both business
owners and private sector workers. A measure
of negative home equity—whether an owner’s or
worker’s mortgage is “under water”—is calculated.
A second set of measures is used to examine the
financial viability of small business owners only.
These measures assess the financial vulnerability of
small business owners along two key dimensions:
wealth vulnerability and income vulnerability. In this
paper, business owners are considered vulnerable if
more than 50 percent of their total household wealth
is held in business assets or if more than 50 percent
of their total monthly household income is earned
from the business.
This study examines the retirement assets of
business owners and private sector wage and salary
workers age 15 and older using three models.
Each model has two stages. The first stage analyzes
the holding of individual account retirement plan
assets; the second stage examines the value of these
accumulated assets. The first model analyzes factors
affecting the individual account retirement plan
assets held by both all business owners and private
sector wage and salary workers, i.e., the entire private
sector work force. The second analyzes only
small business owners (those owning businesses with
fewer than 100 workers) and focuses on the effect
of small business owner financial viability on the
holding and accumulated value of individual account
retirement plan assets. Specifically, it deals with two
aspects of financial viability—financial vulnerability
(wealth and income) and home equity status. It analyzes
whether the financial viability of small business
owners is positively associated with the holding
of individual account retirement plan assets. The
third model analyzes the ownership and accumulation
of these assets held by private sector wage and
salary workers only.
Two types of regression models are used to analyze
the data—logistic regression and least squares
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
firstname.lastname@example.org or by phone at (202) 205-6533.
The full text of this report and summaries of other
studies of the U.S. Small Business Administration’s
Office of Advocacy are available on the Internet at
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