What to Ask When Starting a Business as a Retiree
Thinking about starting a business in retirement? You’ll have company.
People ages 55-64 represent the fastest-growing group of entrepreneurs in the U.S., according to a 2015 report by the Kaufman Foundation. And it’s not surprising. In many ways, retirees seem perfectly positioned to succeed as entrepreneurs. They have the wisdom that comes from decades of work and life experiences. They are more aware of their own strengths and weaknesses. They’ve managed money. And they likely have strong networks of peers and advisors they can turn to for expert guidance.
What retired entrepreneurs don’t have is time—time to recover if their entrepreneurial efforts fail.
And let’s face it; the odds of success aren’t great. According to the U.S. Small Business Association, half of all new establishments close within five years. Two-thirds will close within 10 years. That’s the kind of failure rate a 30-year-old entrepreneur can probably withstand. If the startup doesn’t take off, he or she can try again or get a job and make up for lost time. A 65-year-old doesn’t have that luxury.
So if you’re contemplating a shot at entrepreneurship later in life, carefully consider the risks—especially if you’re planning to invest your own money to get the business off the ground.
Ask yourself these five questions:
1. Why do I want to start a business? Be clear about what you hope to accomplish. Do you consider this your opportunity to finally follow through on something you’re passionate about? Are you hoping to fill the void left by retiring from your career? Are you anxious about being bored or isolated in retirement? Are you in need of supplemental income in retirement? When you’re specific about what you hope to get out of starting a business, you’ll be more focused about the decisions you need to make along the way.
2. Is my spouse or partner completely on board and supportive of my decision? Starting a business can be exhausting. Are you both up for the challenge? While it’s possible that only one of you will actually run the business, you’ll share in the financial risk, the uncertainty and the demands on your time and energy. So you both need to be all in—offering support to each other and the motivation and determination to succeed.
3. If my idea fails and I lose my investment, will I still be able to live the life I want in retirement? Starting a business is incredibly stressful. The last thing you want is to add to the stress—and pose an even greater risk to your future financial security—by tapping into your retirement nest egg to fund the venture. Invest only what you can comfortably afford to lose without compromising your plans for retirement. Likewise, counting on income from a startup may not be the best strategy for supplementing retirement income. Consider having a plan B, such as part-time employment, if income is your primary goal.
4. Do I have a plan to keep the business on solid financial footing if something happens to me? One of the drawbacks of becoming an entrepreneur later in life is that the older you are, the greater the risk that you’ll become ill, disabled or die while running the business. Do you have a plan to cover the worst-case scenario? Disability income and life insurance that protect you and the business both become increasingly important for entrepreneurs beyond age 50.
5. Do I have a solid business plan? If you’re a first-time entrepreneur in (or nearing) retirement, you may have only one chance to get it right, so make sure you have a solid business plan in place a few years before launching your new venture. Get a good handle on the product or service you plan to offer. Do some market research to test-drive your ideas. Understand the opportunities and the competitive landscape within your target market. Talk to people who’ve started successful businesses, and ask what you can learn from their experiences. And document your expectations for the business; this will be especially important if you plan to ask for financing from a bank or from investors.
Starting a business in retirement can be a rewarding and fulfilling experience. By taking the time to answer these questions and ensure that you have protected not only your new business venture but also the retirement nest egg you’ve worked so hard to accumulate, you’ll find yourself more confident as you move forward with this new stage of your life.