Financial Goals, Concerns and Actions of Women Business Owners

Financial Goals, Concerns and Actions of Women Business Owners

Focus: Retirement Planning

February 24, 2012

Jill B. McCullough, DM, CFP? Assistant Professor Youngstown State University

Mary Quist-Newins, CFP?, CLU?, ChFC? Director State Farm? Center for Women and Financial Services

Download an electronic copy of this report at TheAmericanCollege.edu/WBORetirementStudy.

Financial Goals, Concerns and Actions of Women Business Owners

Focus: Retirement Planning

Acknowledgements

About The American College and The State? Farm Center for Women and Financial Services

The American College is the nation's largest non-profit educational institution devoted to financial services. Holding the highest level of academic accreditation, The College has served as a valued business partner to banks, brokerage firms, insurance companies and others for over 85 years. The American College's faculty represents some of the financial services industry's foremost thought leaders. For more information, visit TheAmericanCollege.edu.

In 2007, State Farm? endowed a Chair in Women and Financial Services at The American College. This faculty appointment was the first and only academic chair in the country devoted exclusively to the study of women and their

financial concerns. State Farm Insurance? made another generous donation to The College, enabling the creation of a new Center for Women and Financial Services in 2011. As the first academic center of its kind, this focal point of research, education and knowledge serves as the nation's leading authority on the economic issues and opportunities of American women, both as consumers and providers of financial products and services. Through leading edge research, financial education and awareness building, The Center's mission is to promote the advancement of women in the financial services industry and to advocate for the economic security of American women.

About the Authors

Professor Mary Quist-Newins, ChFC?, CLU?, CFP?, has the distinction of being the Director of the State Farm Center for Women and Financial Services and holding the research chair. During her 20-year career in financial services, QuistNewins has achieved success as both a field producer and a corporate leader. Treasury & Risk recognized her significant contributions to the financial services industry by naming her to the magazine's elite list of "25 Outstanding Leaders in Finance Who Happen to be Women" in November 2008. In 2010, Quist-Newins authored the comprehensive academic textbook, Women and Money, Matters of Trust. In 2011, she was honored by Women in Insurance and Financial Services (WIFS) as the "Woman of the Year" for her commitment to increasing awareness of the financial services issues affecting women.

In addition to holding a Master's in Business Administration from the Garvin School of International Management, Quist-Newins has earned the prestigious Chartered Life Underwriter?, Chartered Financial Consultant? and Certified Financial Planner? advanced designations. She received her BA from the University of Washington.

Dr. Jill McCullough supports The Center's original research through findings analysis, research report development, papers in academic journals and the development of course curricula. She received a Doctor of Management in May 2010 from The Weatherhead School of Management at Case Western Reserve University in Cleveland, Ohio. Dr. McCullough has an extensive teaching background that includes finance, accounting and business technology. In addition to her fellowship at The American College, she is currently an Assistant Professor of Finance at Youngstown State University. Dr. McCullough's areas of research concentration include:

? Behavioral finance and organizational management;

? Financial services product development strategies;

? Entrepreneurial behavior as it affects financial decision making;

? Delivery mechanisms of financial services.

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? 2012 The American College, All Rights Reserved.

Financial Goals, Concerns and Actions of Women Business Owners

Focus: Retirement Planning

Contents

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Study Overview: Financial Goals, Concerns and Actions of Women Business Owners. . . . . . . . . . . . . . 4

Opportunity to Provide Service to an Important and Growing Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Study Focus: Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Overall Retirement Planning Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 1: Women Business Owners' Concern for Retirement Planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Confidence in Their Efforts Despite Inaction in Retirement Planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 2: Concern for Retirement Planning Contrasted with Opinion of Adequate Attention Paid.. . . . . . . . . . . . . . . . . . . . . 6 Few Have Formally Calculated Their Eventual Retirement Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 3: Retirement Planning Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Little Concern for Specific Retirement Planning Items.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Specific Retirement Planning Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 4: Retirement Planning Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Confidence in the Adequacy of Their Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 5: I take an active role in understanding my retirement needs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 6: My financial advisor told me I was on track and I trust/believe her . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Use of Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Retirement Plan Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 7: Use of Retirement Investment & Retirement Plan Types. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Maximizing the Owner Benefit in a Retirement Plan . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 10 Figure 8: Maximizing the Owner Benefit in a Retirement Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Maximizing the Value of a Transfer or Sale of Business to Fund Retirement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 9: Maximizing the Sale or Transfer of Business for Retirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Advisor Used for Retirement Planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Financial Advisor Type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 11 Table 1: Women's and Men's Use of Advisors by Area and Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Financial Advisor Gender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Summary & Implications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Works Cited .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

? 2012 The American College, All Rights Reserved.

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Financial Goals, Concerns and Actions of Women Business Owners

Focus: Retirement Planning

Study Overview: The Financial Goals, Concerns and Actions of Women Business

Opportunity to Provide Service to An Important and Growing Market

Women business owners represent an increasingly robust and important market segment for the financial services industry and its professionals. According to the Center for Women's Business Research, women-owned firms (firms where women hold more than a 50 percent stake in the business) now account for four in 10 of all closely-held concernsi. This represents a substantial market segment. Over 10 million businesses are now majority owned by females. This is also a growing market segment. The number of women-owned businesses has increased by 44 percent from 1997 to 2007--a rate twice as fast as that of maleowned businessesii. In 2009, women-owned firms created/ maintained employment for more than 23 million Americans and had an estimated economic impact of $3 trillioniii.

Rarely has there been such an easily-identified, growing group of potential clients for business service providers. Yet, this segment has frequently been under-identified as a market for financial services and products. A one-size- fits-all approach has been the standard for services provided to men and women small business owners. Unfortunately, women small business owners, similar to women in general, face formidable financial risks. Greater longevity, lower financial literacy and higher probabilities of disabling health conditions create significant financial challenges. While each of these risks can be difficult to manage, when combined, their drain on an individual's financial resources can be devastating.

If financial services industry thought-leaders are to successfully engage this market, it is critical for them to gain awareness of the specific priorities and challenges facing women. Strategies must be crafted that address the concerns of women small business owners. In addition, more time must be allocated to better train representatives on how to properly address this market.

This project was undertaken with the goal of learning more about women business owners' financial concerns. We obtained responses from 835 female business owners who have recent business revenues greater than $50,000. The results yielded a robust body of information that was summarized into a series of issue- oriented reports focused on retirement, financial management, asset management, protection planning and advisor preferences. It is the goal of the researchers to help strengthen the bridge between the women that own small businesses and the financial services providers who can best help them achieve financial success.

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? 2012 The American College, All Rights Reserved.

Financial Goals, Concerns and Actions of Women Business Owners

Focus: Retirement Planning

Study Focus: Retirement

Business owners, unlike most workers, were always responsible for funding their own retirement. It might be assumed, therefore, that retirement planning is a routine aspect of their financial activities. Evidence suggests, however, that small business owners have done very little planning and saving for the time when they must transition out of their businesses. In fact, 40.8 percent of U.S. small businesses do not even have a retirement plan in placeiv.

Women are particularly vulnerable to the risks associated with inadequate retirement funding. Since they live longer than men, they face a greater risk of running out of money to pay for expenses during their retirement years. This longevity risk is also often accompanied by increased medical costs that can further drain retirement savings.

To get a better picture of the retirement planning status of women business owners, this study concentrated on their retirement goals, concerns and actions. We focused first on the small business owners' general opinions and concerns about retirement planning. We then asked about the actions they have already taken, as well as the actions they feel they should be taking. Next, the owners were asked to identify those financial products they use for retirement preparation. We also asked in-depth questions concerning their use of retirement plans and strategies for transitioning their businesses. Finally, we asked small business owners about their preferences when choosing financial advisors.

The responses to these questions strongly suggest that women small business owners are very confused about their retirement planning. Even worse, they often may not be making any decisions at all, leaving them vulnerable. Here are some of the more alarming results of our research:

? The majority, 84 percent, are concerned about retirement.

? One in three (34 percent) have not estimated how much they will need in retirement.

? The majority, 77 percent, do not have a written retirement plan.

? Just 37 percent believe their retirement planning needs are complex.

? Approximately 50 percent say they want to maximize their business value to help fund retirement, yet only 10 percent have a written plan to accomplish this.

These responses are particularly troubling since the average age of the women business owners surveyed was just over 50. Retirement, for many of them, will occur within the next 20 years. These responses, as well as many others are detailed in the following pages. The results clearly indicate that women small business owners need more guidance and professional financial advice in order to reach their financial goals.

? 2012 The American College, All Rights Reserved.

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