Small Business Owners Are Falling Behind on Retirement: Here’s How to Catch Up

Last updated: October 14, 2026

Small business owners pour everything back into their companies, often at the expense of retirement savings. A recent survey found a significant portion of small business owners aren't confident they're saving enough for retirement, though that number has improved somewhat in recent years. Yet millions of entrepreneurs are heading toward their golden years without a solid financial cushion.

The question is: how do you fix this without killing the momentum you've built in your business?

Quick take:

• A substantial minority of small business owners lack confidence in their retirement savings
• Only a fraction of surveyed businesses are saving the recommended threshold
• The pandemic caused many owners to pause or reduce contributions
• Average 401(k) contributions rose notably from 2019 to 2021
• Market downturns can create buying opportunities for consistent investors

Why Small Business Owners Fall Short

Reinvesting profits into your business makes sense on the surface. Growing revenue feels more urgent than distant retirement goals. Every dollar you pump back into inventory, marketing, or hiring seems to generate more dollars—that's a tangible return you can see on your balance sheet.

Retirement savings? Abstract. Years away. Easier to push off until next year.

But compound interest works in reverse too. Every year you skip saving is a year of growth you'll never recover. The math is unforgiving. Starting to save later in your career means you'll need to put away significantly more per month than someone who started earlier to reach the same endpoint.

The pandemic made things worse. Many owners stopped or reduced retirement contributions to cover rising costs or survive closures. Some were already behind because they never prioritized retirement, viewing their business equity as their retirement plan. That's a risky assumption—if the business fails, you've lost both your income and your nest egg.

What the Experts Recommend

Financial advisors commonly suggest saving a substantial portion of income for retirement. Yet surveys show only a minority of small businesses hit that threshold. A notable share of owners aren't contributing anything.

If you can't save that much immediately, start with what you can and increase it gradually. The important thing is to start. A small, consistent contribution beats a large, sporadic one because it removes the temptation to time the market.

Review your business expenses with fresh eyes. That office space you barely use, the software subscriptions nobody opens, the client lunches that aren't generating ROI—cut what you can and redirect those funds to retirement accounts. One advisor suggests asking yourself whether you could work from home to save on costs or cut unneeded luxury items.

For those already saving something, reviewing your investment allocation makes sense. If you're too conservative, you might be leaving returns on the table. That doesn't mean betting everything on risky stocks, but it might mean adjusting your risk level.

Our Analysis: Why This Matters for You

Here's the reality: small business owners face a unique challenge that salaried employees don't. When you're grinding daily to keep the lights on and pay your team, it's hard to justify money going somewhere you can't see working for you right now.

But consider the alternative. What happens when you want to sell your business or step back? You need somewhere to live, food to eat, healthcare to cover. Social Security alone won't cut it—most advisors suggest you need a substantial portion of your pre-retirement income to maintain your lifestyle.

Market downturns can actually work in your favor if you have cash available. Historical data shows that when markets drop significantly in a short period, subsequent returns have been positive on average. Yes, market volatility is uncomfortable. But for those staying the course, it creates buying opportunities.

The key is dollar-cost averaging—investing a fixed amount regularly regardless of what the market is doing. You buy more shares when prices are low, fewer when prices are high. Over time, this smooths out your average cost per share.

One advisor walks through an example: an investor who consistently buys a fund during high markets, low markets, and recovering markets. Over time, this investor comes out ahead even though they bought some shares at market highs and some at lows. Their total outlay and average cost per share resulted in a market value higher than their investment—because they kept contributing regardless of conditions.

A Practical Example

Let's say you run a consulting firm. Currently, you reinvest most profits back into business growth and spend the rest on lifestyle. A smarter approach might involve committing a portion of your income to retirement and redirecting funds from business reinvestment and lifestyle spending. Automate it so it happens on a set schedule—you never see that money, so you don't spend it.

Over time, regular contributions compound. The longer you maintain this habit, the more your savings grow, even if you started later than ideal.

What to Watch Next

If you're behind on retirement savings, the worst thing you can do is nothing. Pick one action today: open a retirement account if you haven't, increase your contribution incrementally, or audit one expense you can cut. Start small. Build the habit. The longer you wait, the harder it gets to catch up.

The bottom line: your business can thrive and you can save for retirement at the same time. It requires discipline and intentionality, but it's possible. Your future self will thank you.

Key takeaways

• Save at least 10% of income for retirement; start somewhere if that's not possible yet
• Audit business expenses and redirect savings to retirement accounts
• Market volatility can be an opportunity if you invest consistently
• Automate your contributions so you don't have to think about it
• The best time to start was yesterday; the second best time is today