The baby boomers are hitting retirement age. Traditionally people have spent their golden years playing golf, sitting poolside and collecting Social Security for 20 years or so.
However, many of today’s new retirees say they intend to keep working, and some plan to start their own businesses.
Stacy Francis, president and founder at Francis Financial in New York, says there are several good reasons to become your own boss once you’ve given up the 9-to-5 routine.
“No. 1 is because we’re healthier, but also because people want to stay engaged,” Francis says. “A third reason we often see is for extra income, to help supplement those everyday living costs that maybe they didn’t save for.”
Starting a business at any age requires some serious thought and planning. In addition, there are a few special considerations for people thinking of opening a business during their 50s, 60s or beyond.
Following is a checklist of things to think about before jumping into entrepreneurship during your golden years.
Choosing a business that allows you to pursue your passions may be the most important step in creating a successful business in retirement.
“I think it’s really up to each person and what they want to do,” says Ken Proskie, who left the corporate world at age 51 to become CEO of his own business, Compass Health & Safety in Evanston, Ill. “It may not have anything to do whatsoever with your previous background or jobs or previous training.”
Gary Dunn agrees. Dunn left the corporate world at 38 years old to publish The Caretaker Gazette, a newsletter he publishes out of Boerne, Texas, that tries to match house sitters with homeowners who need an on-site caretaker.
Dunn suggests building a business around something you enjoy, whether it’s woodworking, writing or painting.
“You’ve got to have a passion for whatever the business is,” Dunn says. “If you’ve got something you love to do and have a passion for it — and you have that nest egg under you as a cushion — you should be successful. Just do whatever you love doing and concentrate on it.”
Most business owners mess up somewhere along the line, sometimes catastrophically. If you’re in your 20s, 30s or 40s, there’s plenty of time to get back on your feet and start over.
However, the margin for error is a little smaller once you reach retirement age, according to Steve Strauss, small business columnist for USA Today and author of “The Small Business Bible.”
“All great entrepreneurs try to reduce risk, because entrepreneurs are inherently at risk,” Strauss says. “But when you retire you’re really susceptible to risk because you can’t make it up. When you’re 30 and you make a mistake, there’s still room and time to catch up. When you’re 70 or 65 and you blow a lot of money, you really can’t afford to make that mistake.”
One way to minimize the risks surrounding a post-retirement business is to avoid dipping into your retirement savings to start the business.
“I don’t think they need to spend their retirement money,” says Jeff Williams, chief coach for Bizstarters, an Arlington Heights, Ill., firm specializing in older entrepreneurs. “I don’t think it’s a good idea, and I don’t think they need to do that.”
A little careful research and planning can eliminate the need to tap into your nest egg, Williams says.
“You’re looking at being able to start a business for well under $10,000,” he says. “With a smart marketing plan you’re making money in a month or two, so what do you need to spend your retirement money for? It’s the last place you should go for money. It would be better to take out a home equity loan than tap your
When protecting your nest egg, don’t forget about Social Security benefits. If you make too much money, the government taxes your Social Security benefits. Currently, a married couple filing jointly can earn $32,000 annually before Social Security benefits are taxed; for a single person, head of household or qualified widow or widower, the cap is $25,000.
This income can come from a pension or from a business or both. Francis feels that this is “really something you need to take into account” when planning to open a retirement business.
Before starting a new business, be realistic about the level of physical and mental energy you are willing or able to pour into your work. Some businesses can be run comfortably from your deck with a laptop computer and a cold beverage at your elbow. Others require significant physical labor — such as owning a bakery, restaurant or bed and breakfast.
“I think there are certain things you don’t want to do that require a great deal of physical energy, although I know some people in their 50s or 60s who are in great shape,” says Howard Stone, the CEO of 2 Young 2 Retire Associates who is based in Palm Beach Gardens, Fla.
“But in general, this age group wants to settle into one or two locations. This isn’t typically a stage in life where people want to be road warriors and get on planes all the time and go to meetings.”
Also, remember that a new business may cut into all those long lunches and tee times you dreamed about before retirement. Williams recently had a client who expected to earn $100,000 in a new business while only working 20 hours a week.
“I told him I didn’t see him making that kind of money in 20 hours a week,” Williams says. “He either had to cut the money back or increase the hours. Maybe the second year, he could make that kind of money.”
Williams suggests following your passions, but also matching them to your desired lifestyle.
“If you want to go to Europe for three months of the year, then you need to have the right sort of business,” he says. “You can do it, but you have to think about it on the front end. You have to say, ‘I’m going to work nine months a year and during those nine months I’m only going to work 20 hours a week.’ And that affects your type of business.”
Retirees can run any type of business just as successfully as young whippersnappers. However, Williams says older entrepreneurs who come to his firm often express interest in one of three types of businesses.
The first is service businesses.
“One of my clients started a QuickBooks accounting software consulting company,” Williams says. “She’s in her 50s. She charges $85 an hour and works from home.”
Secondly, older entrepreneurs often want to start businesses that are Web-based, he says.
“I have a client who loves to trout fish and realized a lot of other people did, too,” Williams says. “He wrote a 120-page book on how to trout fish and he sells it on a Web site.”
Finally, many older entrepreneurs look to consulting. Williams warns, though, that a fair number of people who come in saying they want to be consultants are actually using code for “I can’t find a job at age 50.”
“That’s not enough to make you successful,” he says. “In consulting, we really try to help people dig to find that really special group of knowledge they have.”
Meanwhile, Strauss urges retirees to consider a fourth type of small business: a franchise.
Franchises are businesses in which you pay a fee to gain the right to sell or distribute the product of a larger company. Franchises offer several advantages over starting a business from scratch. For example, they often already have a known brand and a marketing hook. In addition, you’ll receive invaluable help from the franchisor about how to run your business.
There are franchises available in all types of industries, including food, automotive, retail, travel and more. Some are affordable, some require huge investments.
“A franchise makes sense if it’s a proven franchise with a clear-cut return,” Strauss says. “Not all franchises are created equal. Talk to other franchisees. Make sure it’s legit, that you get a good location and that they have a good system.”
There’s no reason to go it alone. There are numerous resources for would-be entrepreneurs, including coaches like Williams and Stone.
Francis noted that when she started her business, she relied on SCORE, which is run in conjunction with the U.S. Small Business Administration. SCORE calls itself “Counselors to America’s Small Business” and provides free advice to would-be entrepreneurs.
SCORE counselors are volunteers with business experience, and are matched to clients with similar business plans.
“There are literally hundreds around the country,” Francis says of SCORE volunteers. “When I started my business it was unbelievably helpful to me.”
Businesses owners of every age speak about how much fun they’ve had, how much money they’ve made and how rewarding it is. However, many entrepreneurs also warn that running your own business has significant drawbacks. For example, you’ll work a lot but have very little security, at least initially.
Before you start a business in retirement, ask yourself this question: Are you really an entrepreneur?
“If you haven’t been an entrepreneur your entire life, you have to think whether you are an entrepreneur,” Strauss says. “At the tail-end of your career, I would say there’s a test you can take. If the idea of losing your job and starting a business gets you excited or happy, then you’re an entrepreneur. If it worries you more than it excites you, maybe you’re not an entrepreneur.
“You need to give yourself that same quiz when you’re retiring and thinking about running a business. Think about that carefully.”
However, running a business at any time in your life can be exhilarating and rewarding.
“I love entrepreneurs because they’re passionate people,” Strauss says. “It’s not about business. It’s about passion, doing something they love every day. So the upside is fantastic.”