Presented by Fred Gaskin
In my many years of working with retirees, I’ve seen it happen again and again. My clients will come to realize they’re bored and wish they were busy. Thankfully, many choose volunteer work and productively serve their neighbors and the broader community. Others crave the fast-paced world of business and choose to take advantage of their skill set by reentering the workforce via part- or full-time remote work. But for some retirees, the idea of working for themselves by purchasing or launching a business is the most appealing option.
If you’re one of the many people considering starting or buying a business in retirement, my advice is to do your homework and take the time to understand the effort and the resources necessary for success. As a starting point, I offer five steps to help organize the process.
Step 1: Plan. If you’re funding the business even partially out of your own pocket, make sure you have a clear plan for balancing your personal expenses with your business costs. As you carve out a portion of your money to support the business, make sure you’re protecting those funds earmarked for retirement.
Step 2: Fund. Perhaps you’re considering selling real estate or drawing upon savings for startup capital. If you’re not planning to tap your savings or don’t have sufficient resources to fund your business out of pocket, you might need to consider borrowing—but be aware that taking on new debt in retirement has risks.
I remind people to explore all available options, fully understand the terms of the loan, and have a solid plan for paying it back. If you tap a home equity line of credit or a personal loan, keep in mind that you’re tying your personal finances to the health of your business.
Step 3: Protect. People may think that setting up a business is just a matter of hanging out a shingle, but that can be a big mistake. For example, many small businesses begin as a sole proprietorship, but that could lead to your personal assets being used to settle business debts or even a lawsuit. Consider filing documents that treat your business as a separate legal entity, and perhaps consider liability insurance as an additional safeguard.
Step 4: Prepare. Inadequate tax planning is a potential pitfall, so you need to think these issues through. Starting a business can expose owners to new taxes they may not have anticipated, including estimated taxes paid quarterly. On the other hand, a small business can open up tax deductions unavailable to those who don’t own businesses, such as the cost of setting up a home office and travel expenses. A good tax advisor is often a must for a small business in retirement.
Step 5: Hire. No novice business owner can be expected to know every detail up front. A good financial planner can offer higher-level guidance on topics such as taxes, insurance, and even best business practices. This person may also point you toward other specialists such as an accountant or attorney who can handle the nitty-gritty. Translating a lifelong dream into a successful enterprise can be tricky, to be sure, but it often starts with the right advice.
Because our local community is so vibrant and growing so rapidly there are multiple paths to consider when thinking about un-retirement. As a small business owner myself, I know firsthand how rewarding and satisfying starting and running your own business can be. I also know that good planning, strong financial discipline, and having smart partners can make all the difference.
Fred Gaskin is the branch leader at the Charles Schwab Independent Branch in Bluffton. He has over 35 years of experience helping clients achieve their financial goals. Some content provided here has been compiled from previously published articles authored by various parties at Schwab.
The information here is for general informational purposes only. It should not be considered an individualized recommendation or personalized investment or tax advice, and the investment strategies mentioned may not be suitable for everyone. Where specific advice is necessary or appropriate, please consult with a qualified tax advisor, CPA, Financial Planner or Investment Manager. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
