SILVER ENTREPRENEURS

How to start a business as a retiree

By Mac Gardner of Merrill Lynch.

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.


Why Build a Business After 55?

Retirees decide to take on the challenge of starting a business for many reasons:

  • They are still physically able to work

  • They want more money to accommodate a potentially long retirement

  • They want to pursue a passion

  • They want to stay active and intellectually stimulated


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. By planning carefully the outcome can be a financial success.


Raising Capital

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 life style.

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. Tapping into these savings may result in an unacceptably high likelihood of your outliving your retirement assets.

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.


Angel Investing

While starting a business can be an exciting retirement decision, it is also a large commitment to make. Many retirees start businesses they are passionate about, but the responsibilities involved can be very 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.

Which ever path you take, partnering with a knowledgeable Financial Advisor who you can trust can help you to make informed decisions about your retirement goals. Know that when the time comes and your business is up and running, your Financial Advisor will continue to provide you with advice and guidance to help you maximize your investment.

From helping you to forecast the financial outlook of your business, establish objectives, and determine the company’s risk profile to managing the balance sheet, your Financial Advisor will be there for you and your new business every step of the way.

Mac Gardner is Senior Vice President, Head of Private Client Americas at Merrill Lynch.

© 2015 TLC Magazine Online, Inc.