Older Self-Employed Workers and Planning for the Future

This study examined retirement expectations of the older self-employed utilizing two theories: the normative anticipation of retirement and cumulative advantage theory. Two-thirds of the older self-employed had no retirement plans. Multinomial logistic regression showed that those with no retirement plans were more likely to he unmarried, in poorer physical health, with few resources, and more obligations, hut they expected to live a long time. Job skills programs and managerial training could improve the financial well-being of the older self-employed and enable them to plan for retirement. INTRODUCTION As the work force ages and as changes in Social Security benefits loom, it is necessary to understand the retirement behavior of older workers. However, there is little existing research on the self-employed and retirement. This gap in the retirement planning research exists because most pension studies focus only on employees and job-related pensions (Gustman, Mitchell, and Steinmeier 1995). Hence, the purpose of this study is to examine the retirement expectations of the self-employed. The demographic, financial, and pension characteristics of the self-employed differ from wage and salary workers, and this may lead to different retirement expectations. One previous study has shown that self-employed workers' retirement savings were most likely to be invested in their businesses and least likely to be held in tax-deferred accounts (DeVaney, Su, Kratzer, and Sharpe 1997). In contrast, wage-and-salary workers are more likely to save for retirement using tax-deferred accounts (DeVaney and Chien 2001). If the majority of the self-employed have no pensions plans and are depending primarily on their business for retirement income, they may be financially disadvantaged in later life. However, the self-employed might have different expectations for retirement because they have been self-directed in their work. Because retirement planning information provided in the workplace is designed for wage-and-salary workers, the information focuses on participation in tax-deferred savings plans, allocation of contributions to these plans, and withdrawal from these plans. Most of this information does not apply to a self-employed worker. The results of this study can provide evidence on the retirement planning of older self-employed workers and suggest what retirement planning education is needed. Further, the results will offer a preliminary analysis for policy implications in regard to the self-employed and retirement planning. Who Is Self-employed? About 10% of American workers were self-employed in 1997, but the numbers are expected to increase, especially among older workers (Georgellis and Wall 2000). In spite of their relatively small numbers, self-employment is receiving attention from a variety of sources. For individual workers, self-employment promises higher earnings, enhanced professional standing, and independence (Silvestri 1991). In addition, the desire to have flexible hours often motivates wage-and-salary workers to start businesses. Another motivation for becoming self-employed is the downsizing and consolidation of corporations. Skilled middle-aged workers are frequently among the downsized workers; many reenter the work force by becoming consultants and starting their own businesses (Von Bergen, Soper, and Flicker 1998). Policymakers tend to assume that self-employment will create jobs and provide income for workers who are either unemployed or earning less than desired (Georgellis and Wall 2000). For many disadvantaged workers such as minorities or those with less education, self-employment may provide a better route to financial success than working for someone else. The importance of self-employment is reflected in government programs such as the Small Business Administration's loan program that several states have used to help the unemployed start their own businesses (Raheim 1997). …