It’s no secret: Baby boomer small business owners are having a hard time letting go and retiring.
The number of Americans turning 65 is expected to peak in 2024, yet retirements aren’t following the same predictable trajectory.
From the deeply emotional reasons surrounding identity and sense of purpose, to more concrete issues like financial security, business owners cite a long list of reasons they’re stalling.
But a major stumbling block could be a simple failure of imagination.
When it comes to transitioning from leading a business to retirement, too many owners limit their thinking to black-and-white options like finding a buyer or shuttering the business altogether.
But the choice doesn’t have to be all or nothing.
In fact, selling to an employee stock ownership plan (ESOP) can alleviate most major concerns of would-be retiring business owners, and help them retire on their own terms.
In this article, we'll dive deeper into why baby boomers are hesitant to retire and how ESOPs can offer a smooth transition out of business ownership — and into whatever comes next.
Why So Many Baby Boomers Aren’t Retiring From Business Ownership
There are several reasons why baby boomer business owners find it hard to step away from the work of leading a company. Here are just a few:
- Financial uncertainty
- Lack of investment alternatives for diversification
- Increasing longevity
- Succession planning challenges
- Sense of personal identity
- Emotional attachment
- Desire to mentor young employees
- Fear of boredom
- Desire to stay active
- Need for social interaction
- Commitment to community service
In a general sense, these justifications for prolonging work can be boiled down to four major areas of concern:
- Retirement financial security
- Business succession planning
- Emotional attachments
- Longevity and healthy aging
We’ll take a closer look at how an ESOP sale can help address these concerns. But first, a quick recap:
What’s an ESOP?
An ESOP is a qualified retirement plan, an employee ownership vehicle, and a highly versatile business transition tool for owners of closely held companies. It offers unique tax advantages to the selling business owner, the ESOP-owned company after the sale, and employees who become plan participants. Download our free ebook to learn more here.
Shoring Up Financial Security in Retirement
Much of a business owner's retirement savings (if not all of it) is often tied up in the company. This can create uncertainty about the future value of the company and whether its value can provide enough income. Inflation and market volatility compound these concerns, since owners would reinvest proceeds from the sale to fund retirement.
But selling to an ESOP can provide more financial flexibility than other sale options. For one thing, the selling owner can choose how much of the company they want to sell, up to 100%, for full fair market value. Plus, with options for structuring the sale and deferring taxes, business owners have plenty to gain.
Maybe best of all, the owner isn’t obligated to retire when they sell to an ESOP. They can access liquidity to diversify their holdings and keep working to continue earning an income, or ease into semi-retirement as they finalize a succession plan.
Solving the Succession Planning Challenge
Many business owners haven't adequately planned for who will lead the company after they depart. That could put the company’s future success at risk. But an ESOP sale can help ensure business continuity while creating a timeline to identify, train, and develop future leaders.
In fact, by adding a meaningful retirement benefit to their employee benefits package, business leaders may find it easier to attract and retain great employees — a major competitive advantage in challenging regional economies or industries. When employees have a vested interest in the company’s success, as they do with an ESOP, they’re more likely to be productive and loyal over the long term.
Meeting Emotional and Social Needs
A sense of identity and purpose, fear of boredom, and a need for socialization may all be mental/emotional needs, but that doesn’t make them less important. Many baby boomers have spent a lifetime building their businesses and are understandably attached. The thought of handing over the reins can be difficult; the thought of being cut off from a source of so much personal meaning can be devastating.
On top of self-serving emotional needs, many business owners derive satisfaction and fulfillment from supporting their community and providing jobs and professional growth to successive generations. They may also worry that selling will change the company culture they nurtured and built over decades.
But an ESOP sale can leave plenty of room to meet those needs, as the selling owner gets to exercise choice and control over their own exit. That can support hand-selecting and grooming leadership successors who will uphold the cultural and community legacies attached to the company.
Supporting Healthy, Active Aging
In the U.S., life expectancy is around 76 years for men and about 81 for women, and after decades of mental, physical, and social stimulation, pulling the plug on work might be too abrupt a transition.
But when a business owner sells to an ESOP, they can retain a sense of control over their transition into retirement. That might start with maintaining an active role in day-to-day management and testing the waters of retirement simply by finally taking a few of those long-delayed vacations.
Over time, as leadership successors are put in place, shorter work hours and reduced responsibilities can enable the company to tap into their experience as they mentor younger employees and the leadership team strategizes for future business growth.
Are you ready for retirement?
Even if you’re not quite there, you owe it to yourself to investigate the ESOP option. An ESOP could offer just the right combination of timely access to liquidity and control over your exit, along with a valuable retirement benefit you can feel good about offering to employees, too. It’s easy to explore whether an ESOP is a good fit for you and your business. Just click the link below to take a free quiz.
