Tips for Starting a Business in Retirement

Not that long ago, retirement meant long days punctuated by occasional games of golf and bridge. But today, with lengthening life expectancies and dwindling pensions, many Americans are looking to retirement as an opportunity to start a new business.

Common Characteristics
Older entrepreneurs differ from their younger counterparts in several critical ways. For one, seniors are usually in a much better financial position than younger entrepreneurs. Their bigger financial cushion -- retirement packages, nest eggs, or home ownership -- affords them flexibility in the initial stages of a start-up, where funding is often critical. Because they can often rely on other sources for current income, they are in a better position to take entrepreneurial risks.

Creativity and business acumen are also key characteristics of elder entrepreneurs. Having been tested again and again in their lives, they're not afraid of failure or worried about what others will think. Instead of that urgency to "make it”, they get their satisfaction from the process of building their companies.

The type of businesses typically started by retirees varies widely. Consultancies, small retail businesses, and bed-and-breakfast establishments are perennial favorites. A growing number of late-life start-ups also involve Internet-based businesses. While most senior start-ups are related to an individual's former career, some break into completely new territory.

Know Your Limitations
There are several considerations you should bear in mind before taking the leap. Start-ups can be physically and emotionally draining. Are you willing or able to work the long hours that may be required in a fledgling business?

Then there's financial vulnerability. Compared with their younger colleagues, seniors rely much more on personal investments to supply a portion of their income. For this reason, retirees are advised not to sink too great a portion of their investment portfolio into a new business and should avoid pledging as loan collateral personal assets such as a home.

Considerations Before Making the Plunge

1. Build on already established contacts and expertise, which can give you a competitive advantage in virtually any business.
2. Start small and gradually work your way into a full-blown business. This will give you time to assess whether you're willing or able to take on another full-time career.
3. Consider your income needs before investing a portion of your nest egg in a new business and think twice before taking on any personal debt.

Starting a business when you retire may be an alternative way to begin that next chapter in your life. It is important to make sure you fully understand the potential impact on your financial situation, so be sure to contact your financial advisor to discuss all your options.

Jeffrey Thatcher is a CERTIFIED FINANCIAL PLANNER ™ and Director of HVFCU Financial Services, the investment division at Hudson Valley Federal Credit Union.

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Hudson Valley Federal Credit Union and HVFCU Financial Services are not registered broker/dealers and are not affiliated with LPL Financial. This material was prepared for Jeff Thatcher’s use.

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