It’s a big deal anytime someone decides to start a business, but it’s an especially big deal if you decide to do it after you retire.
“I applaud the effort of people that have something that they enjoy, something that’s a passion of theirs,” says Morgan Hill, founder of Hill & Hill Financial in Woodstock, Georgia.
“But very often, they’ve never experienced this before,” Hill continues. “And the Internet has kind of said everything is do it yourself – you can kind of hit these buttons and start your own company. Sometimes it’s a little more complex than that.”
Starting a Business 2.0
With any entrepreneur, regardless of age, there’s always things that aren’t done right,” notes Ryan Halliday, managing partner at CREWE’s private wealth management division in Salt Lake City, Utah. “That’s part of the entrepreneur journey, making mistakes as they start businesses.”
Watch out, Retiree Entrepreneurs
There are several mistakes that retirees tend to make when they start a business in retirement, financial advisors say. Among them:
Underestimating how much time a business will take
“Most people want a couple of things in retirement,” says Hill. “They want to manage their treasure and they want to keep ahold of their time.”
“A lot of folks dive in and they really underestimate the time”
“A lot of folks dive in and they really underestimate the time,” Hill adds. “Often, they think it’s something they can do at home. My experience as an entrepreneur and growing a company, is: whatever you estimate, double it.”
Not realizing how quickly the world has changed.
A big challenge for seniors as they build a new business is realizing how quickly the world has changed. It’s moved from the traditional way of doing business to one more requiring technology platforms to compete, says Halliday.
“Sometimes I think there’s a steep education learning curve that has to happen to employ technology into their business, whatever it is. That can also hold them back because they may start before they’re ready and fully understand that the technological needs of running a business today,” Halliday says.
Not properly planning where the money will come from and the tax implications.
“I’ve had some folks where they start pulling money out of IRA money, so then that creates a tax bill that they didn’t anticipate,” Hill says. “So, then they pull more money out of the IRA to pay that tax bill, which creates another tax bill.”
“And so, it’s kind of like a fall, rolling down the hill. Your legs get out from under you, and you just completely lose your balance.” Hill recalled that one client took five or six years before he caught up on the downward spiral of the tax (though he didn’t withdraw the money to start a business).
Not being prepared for the struggle to hire employees, especially in the age of COVID
“If you have a business that requires hiring people, the landscape has dramatically changed,” Hill says. “Most retirees starting a business come from a working environment. They’ve never had to be in an entrepreneurial hiring environment,” he says. “And they completely underestimate what that looks like and how that works.”
Not considering the negative impact on benefits they are currently receiving
“If they have income, their Social Security payments may be reduced until they reach a full Social Security age,” says Halliday. “So, they may have a gap where they have reduced income in Social Security because they now have earnings again, through their business.”
Rodney A. Brooks writes about retirement and personal finance issues. His column currently runs in U.S. News & World Report. He has written columns on retirement for The Washington Post and USA TODAY. He has also written for National Geographic, Next Avenue and Black Enterprise magazine. He retired as Deputy Managing Editor/Personal Finance and retirement columnist for USA TODAY in 2015.
Looking to start a business but need a hand? Check out AARP’s Make Your Move Entrepreneurship Contest. Details and information here.
Your use of any financial advice is at your sole discretion and risk. Seniorplanet.org and Older Adults Technology Services makes no claim or promise of any result or success.
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