Small Business Owners Face Retirement Crisis

Older Entrepreneurs Struggle to Secure Their Future

Many U.S. small business owners, deeply interwoven in their communities, are nearing retirement, but they face unprecedented challenges. A confluence of economic factors, from inflation to shifting policies, is jeopardizing their ability to retire with financial security.

The Looming Retirement Crisis

As a professor studying business and aging, Nancy Forster-Holt has long seen this challenge coming. Small businesses constitute over half of all privately held U.S. companies, often serving as the primary retirement plan for their owners. However, only a small percentage are actually prepared for sale.

Economic instability currently hampers those plans. Inflation, supply chain disruptions, and rising borrowing costs are cooling buyer interest. Baby boomers, aged 61 to 79, own roughly 2.3 million businesses, generating billions in revenue and employing millions. These entrepreneurs are now facing the toughest economic conditions in decades.

Challenges and Policy Shifts

Recent policy changes have increased burdens for business owners. Tariff announcements and supply chain disruptions have squeezed already thin profit margins. Some businesses are absorbing extra expenses instead of passing them on. Inflation further pressures profits.

Simultaneously, buyers and capital are becoming scarce. The secondary market sees more sellers than buyers. This “flight to safety” slows sale timelines and diminishes valuations. This situation affects Main Street business owners as they age out of their ventures. These entrepreneurs have what is essentially one shot at retirement.

Impact on Local Economies

Many small businesses are integral to local economies. They provide services to universities, hospitals, and local governments. When those anchor institutions face budget cuts, these small businesses often suffer. Many owners react by sinking increasing amounts of time and money into their businesses, a pattern known as escalating commitment.

“The result is a troubling phenomenon scholars refer to as ‘benign entrapment.’ Aging entrepreneurs can remain attached to their businesses not because they want to, but because they see no viable exit.”

—Nancy Forster-Holt, Professor

This situation is a systemic failure, not a result of personal financial planning. Businesses owned by baby boomers face a uniquely difficult time, as only 30% of businesses survive into the second generation, according to research by the Small Business Administration (SBA 2023).

Policy Changes Needed

Policymakers often lump all small business owners together. They miss crucial distinctions. A retiring carpenter has very different needs than a young tech founder. Policy should recognize stability and community value as success markers. Support for retirement planning and attracting buyers is key.

Entrepreneurial ecosystems should include exit strategies. Programs should help wind down businesses. These could include confidential forums, retirement clinics, and succession platforms. Fluctuations in capital gains taxes, estate tax thresholds, and tariffs make planning difficult, reducing business value.

Policymakers should also consider the impact of budget decisions. When local institutions cut spending, small businesses feel the effects. Supporting small businesses involves honoring the full lifespan of entrepreneurship, from launch to retirement.