Starting a business later in life

Thinking of joining the ranks of mid-career—even late-career—entrepreneurs? Here’s some strategic advice. 

Feeling the itch to start a business? The upheaval of the last few years has driven many people—including some working full-time—to explore entrepreneurship. That could mean building on what you already do as a supplemental income source—such as consulting in your field if you’re a professor; or monetizing a passion or hobby, such as personal training or online career coaching. In any case, running a business of your own (or helping your spouse in their endeavor) can bring great rewards. 

It can also bring risk, of course; a 2021 report of the U.S. Small Business Administration says that over 30% of small businesses fail in their first two years. What’s more, the closer you are to retirement age, the more careful you’ll need to be about taking on new debt or financial commitments. But being an older entrepreneur brings its upsides; in fact, according to 2019 research by MIT economist Pierre AzoulayOpens in a new window, middle-aged and older startup founders have a business edge, and the average age of successful founders is 45.

If you’re ready to join them, read on for some details to consider. 

Start with a plan…and some good advice 

You already know the value of having a retirement plan to keep your finances on track for the future. In the same way, you’ll need a business plan to secure financing, and a marketing plan to get the word out. And when you’re starting a business later in life, you’ll need to make sure all of these plans exist in harmony.

Having good financial and legal advice on your side will help you anticipate business costs, and mitigate certain hazards that could put your long-term savings at risk, including in how you structure your company. “If you have a high-risk business, you may need to be set up as an LLC, which offers liability protection,” says Rob Stevens, a Financial Planning Strategist with TIAA.

Consult with your finacial advisor before even considering tapping your retirement plan-a step that's inadvisabel at any age, but even more so the older you are.

Those same advisors can also help you avoid regulatory pitfalls. “[It’s essential to] understand the laws and regulations for your business and what type of licenses and permits are required,” says Stevens.

An accountant can help you avoid financial surprises, too: You’ll likely need to set aside money for taxes on your business income, and pay them quarterly, to avoid a big bill later. And if you’re running your business on the side of a full-time job, they can help you plan for the possibility of being pushed into a higher tax bracket.

Expect success to come slowly

"You’ll be feeding the business before it feeds you. Expect unreliable income,” says Daniel Ruppel, a Financial Planning Strategist at TIAA. Aim to have enough money set aside to cover at least six months of expenses before you start. Remember, too, that if striking out on your own, you will pay higher costs for benefits you had through an employer such as health, life and disability insurance. 

Taking on work as a small-scale freelance business can be a useful way to test the waters. Cheryl James, who was senior director of product management and client experience for American Express Global Travel before she decided to focus full-time on her own business, CL James Consulting (which advises companies on customer service, loyalty programs and more), did just that when she started her business as a side-hustle in 2019.  

“I spent time talking to my ideal clients, understanding their pain points and developing content and programs that solve those,” James says. “I also took advantage of free webinars in my field. I spent 12 to 18 months observing how to be an entrepreneur.”

Don’t borrow against your retirement to start

James launched her consulting business with a nest egg she’d saved precisely for that purpose, which meant she didn’t even have to think of touching her retirement savings. If you don’t have that startup cash on hand, explore options like a Small Business Administration loan or financing program from your local and state economic development office. 

Consult with your financial advisor before even considering tapping your retirement plan—a step that’s inadvisable at any age, but even more so the older you are. “You don’t have a lot of time to make up losses if the business doesn’t go as planned,” says Ruppel.

Not to mention, the major benefit of tax-deferred retirement plans is that they allow you to grow your savings using pre-tax income; if you take money out, you not only lose out on any appreciation it might yet accrue, you will have to pay that money back in after-tax dollars. A lose-lose scenario.

If borrowing from family, take a professional approach

Personal loans from family or friends are another option—but there can be financial as well as personal implications to going this route. “Is it a donation or a loan? Get it in writing,” says Stevens. Be clear about the terms—including the amount, the repayment schedule and interest. “Expectations should be clear, so family dynamics aren’t impacted.”

Note that loans between family members are required to charge the IRS Applicable Federal Rate (AFR); this is usually a rate that’s fairly low, and so appealing for a borrower, but enough that the money is not considered a gift, which would trigger taxes.

Remember that your TIAA financial advisor can be a valuable resource on your business journey, from helping you decide on the smartest way to approach funding, to balancing your various sources of income and managing them to your best advantage.

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