Pros and cons of starting a business in retirement

Becoming your own boss later in life can offer a range of benefits, but ensure your finances can support you in case it doesn't work out.

Retirement can be a great time to pursue old passions, spend more time with loved ones and eventually check off those items on your travel bucket list. But for more entrepreneurs, it's also a chance to start a business, too.

It might be something you've thought about, and you're not alone. There's a growing number of entrepreneurs starting businesses as they get older. More than 25% of new entrepreneurs in 2019 were between the ages of 55 and 64—up from about 15% in 1996.1

New entrepreneurs are starting at older ages

One-quarter of new entrepreneurs were between ages 55–64.


Source: Kauffman Foundation

Leveraging your unique advantages

Starting a business in retirement can be especially appealing for people who have unique skills that they've honed over the years by leading successful careers, says Dan Keady, CFP®, Chief Financial Planning Strategist with TIAA. "It sounds great to retire, but on the other hand, it’s like being on vacation all the time," he says. "Some people—not all—want to continue working in some way to maintain that sense of purpose and have connections with people."

But before deciding to start a business in retirement, Keady says you should explore how that could affect your retirement goals from a financial planning perspective.

Have a solid business plan in place

For Keady, the number one issue is understanding and preparing for the possibility that starting a new business may be a strain, rather than a boost, to your bottom line, at least in the near term. "Some business ventures create negative cash flow and require considerable capital investment," he says. "Many businesses can take a while to turn things around."

The key to weathering that time, Keady says, is having a solid business plan that addresses the potential risks involved from a financial standpoint. "You've got to have that figured out in terms of cash flow and capital investment requirements and know when you expect to hopefully break even," he says. "The proverbial 'prepare for the worst and hope for the best' applies."

A business plan should also include cost estimates for any office-related expenses, payroll, website development and marketing. Plus, it's important to meet with your attorney to make sure you have the proper paperwork that needs to be filed. If you're considering buying into a franchise, consider the expenses related to that as well.

Once you have all the numbers determined, you can work with your financial advisor to understand the impacts to your financial plan and determine if it's feasible to launch your idea.

"A lot of businesses fail," Keady says, which means you need money in reserve if that should happen. "You may not want to bet your retirement nest egg on that business."

Other financial considerations

The bottom line of profitability isn't the only issue you'll want to discuss with your advisor. During your career, your company may have covered the lion's share of your healthcare costs. Be prepared to assume that responsibility running a business in retirement, at least until you're eligible for Medicare and private health insurance plans sold to supplement Medicare, also known as Medigap.

If you're hesitant about starting a business because it doesn't feel like it's the right time, consider there are opportunities for success that might exist no matter what's happening in the world.

"There could be things going on that could perhaps create opportunities for you that weren’t there before," Keady says. "No matter what’s happening in the economy, there are some people who are doing better than ever."

Though many companies have struggled during the coronavirus pandemic, for example, others found ways to prosper. That includes businesses involved in cleaning and home delivery, drive-in movie theaters, grocery stores, game makers, tutoring services, and lawn and garden services.

"The thing you used to hear is that business had to be conducted in person," he says. "But what we've seen is conducting transactions remotely through the Internet and mobile technology because of COVID-19 means you can reach even more people while reducing travel costs."

Starting a business in retirement may not be for everyone. But the payoff can include a feeling of accomplishment while continuing to do the things you love.

"But you want to make sure you can pull it off financially," Keady says. "The first step is making sure you have a strong retirement plan in place."

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