BERLIN – In the age of innovation, new ideas grow more and more popular every day. Plans for a new kind of retirement are no exception. The old idea of retirement doesn’t have the appeal it once did and boomers are now planning for a new stage in their life – one which will keep them active so they can fulfill the passions and dreams they weren’t able to pursue when they were working. Retirees are now healthier — and often wealthier — than they have been during any other time in history, and one common dream that many share is starting their own business.
According to a 2005 Rutgers University study, at least three million entrepreneurs are 55 years or older. They have embraced their entrepreneurial spirits and started their own businesses. This number is up more than 30 percent from 2000. Nearly seven out of 10 workers believe they will work in some capacity after age 55, and 15 percent of those intend to start their own companies after retiring.
Retirees decide to take on the challenge of starting a business for many reasons, many of which include looking for something to put their passion into after their other working career has ended. If you are nearing retirement and think the entrepreneurial path might be right for you, make sure you consider all the factors, both emotionally and financially, before getting started. Partnering with a Financial Advisor will help you to examine your goals and options, including emotional and financial factors so that you can make an informed decision whose outcome can be a financial success.
Retirees often face tough decisions when it comes to financing their own business, such as deciding whether to use their retirement nest egg as start-up capital. The answer depends on a number of factors, including your age, the size of your retirement savings, your risk tolerance and your lifestyle. If you have a modest nest egg that you anticipate will be just enough to provide you and your spouse with retirement income, avoid using your nest egg money for your business at all costs.
However, if you have a significant amount saved, your financial advisor can work with your risk profile and income objectives to determine whether you can liquidate some retirement investments or leverage your non-retirement investments. Borrowing against your assets rather than liquidating them can preserve your nest egg and provide tax benefits. If your portfolio earns a reasonable rate of return, the gains may cover some or all of the interest you pay on the loans. By the same token, if you liquidate some of your retirement assets, you lose the future tax deferred growth of those assets and may incur a significant tax liability.
Be sure to explore governmental resources for raising capital. Look to local, state and federal agencies as well as the U.S. Small Business Administration for guidance on how to properly raise funds for your new business.
Many retirees start businesses they are passionate about, but the responsibilities involved can be overwhelming. One alternative to starting your own business is to finance a friend’s or an adult child’s business. By becoming a partner in someone else’s endeavor, you can avoid making the business a full-time job while still staying financially involved at an entrepreneurial level.
Your financial advisor, along with an attorney and tax advisor, can work with both you and the business owner you are supporting to establish financial and legal agreements around ownership and profit sharing.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.)