Does It Pay to Be an Entrepreneur in Retirement?
Readers share their experiences with starting up their own businesses later in life.
Christmas-tree-farm proprietor. Personal-finance guru. Adirondack-furniture builder.
Those were just a few of the entrepreneurial activities that Morningstar.com readers said they were pursuing--or considering pursuing--in their retirement years. (To read the complete Discuss forum thread, click here.)
They're not alone in wanting to start businesses later in life. As Morningstar contributor Mark Miller discussed in this article, entrepreneurs age 55-65 accounted for 26% of startups in 2014, up from just 15% in 1996.
Many adults become more risk-averse as they age; some pre-retirees and retirees might view a startup business as an easy way to become separated from all of the money they've managed to accumulate over the years. But Miller points out that starting up a business needn't be a risky, capital-intensive endeavor. Rather, a so-called micro-enterprise can key off an area where an individual also has experience and connections, such as consulting; capital outlays can be limited by selling products or services online.
Researchers have been investigating whether there's a link between working longer and better health and longevity, though it's difficult to untangle whether those who work longer tend to be healthier to begin with.
But the financial benefits of working beyond the traditional 65--whether as an entrepreneur or for a company you don't run--are irrefutable. For starters, extra income means you may be able to continue to contribute to your retirement portfolio: Provided you have earned income--that is, income from wages or net earnings from self-employment--you can make Roth IRA contributions at any age and you won't have to take required minimum distributions after age 70 1/2. (Accounts with required minimum distributions, such as traditional IRAs or solo 401(k)s will tend to make less sense for those funding them later in life.) And, of course, you can contribute to a nonretirement/taxable account at any age and with any type of income; there is no earned-income requirement.
Perhaps an even greater benefit of continuing to earn some type of a paycheck for as long as you can is the ability to forestall or limit withdrawals from your portfolio. Reducing the period of time over which you will be tapping your nest egg is the most certain way to improve your portfolio's sustainability; other methods of improving portfolio sustainability, such as bumping up your stock weighting, carry a less-certain payoff.
The third big financial benefit of earning a paycheck--whether through entrepreneurial activities or other forms of work--is that you may be able to delay receipt of Social Security benefits, thereby increasing the size of your benefit. You may also be able to employ techniques such as "file and suspend," which can be an effective tool for couples to maximize their lifetime benefits.
'The Money Has Been a Bonus'
Of course, not everyone who would like to work longer can do so, as discussed in this article. But among posters in our Discuss forum thread on entrepreneurship during retirement, several said that pursuing small-business activities had worked well for them on a financial level while also improving their quality of life.
For Rereusser, a former career provided an excellent springboard for a solo-business endeavor. "I retired 14 years ago from a senior corporate position in intellectual-property monetization," this poster wrote. "With the urging of my fee-only planner, I started an intellectual-property consulting business. Since then I've worked for corporations, law firms, hedge funds, and private inventors. It has been fun and immensely satisfying, and the money has been a bonus."
One piece of advice from Mark Miller's article is to start your micro-enterprise while you're still working, and that's exactly what Hobocon, two years from retirement, is doing with a "choose and cut" Christmas-tree farm. "I have 8,000 trees planted, and plan to plant 7000 more over the coming years. My business plan is to have a team of horses pulling a wagon or a sleigh, with lots of seasonal extras for sale: wreaths, stands, roping, etc. It will be a family day in the country with the children in charge. Memories are priceless."
Meanwhile, Greenjeans has found satisfaction and some extra dough by conducting historical and nature tours at a local high-end resort. "I earn some extra income and, more importantly, stay engaged at the workplace. I tried full retirement, but it was not great for me. I also work as a concierge, as needed. If you live in a retirement community, you may be able to find part-time or on-call work at a resort."
But, Greenjeans cautions, "You need to feel comfortable working with people young enough to be your grandchild!"
Not every micro-enterprise will automatically be remunerative, either. Fingerlakesguy, for example, has had mixed success selling his photographic work online. "I wish I could say that this has been a lucrative endeavor, but it has not. I've had photos accepted, some sold, but unless I want to open up a store or take up event photography (weddings, etc.), it looks likes I will end this for anything but a hobby soon. The good news is that I've been able to write off some expenses, including travel expenses, mileage, etc., from my taxes, so that was a gain."
Nor has the photography experiment quelled Fingerlakesguy's entrepreneurial spirit. "I had fun, have some beautiful photos, and I didn't need to make money, so I'll move onto my next adventure/postretirement career. I already have a couple of ideas, such as Adirondack-furniture building and growing mushrooms for use at the many restaurants and farmers markets around me. There are always ways to keep life busy and productive."
'Our Family Mutual Fund'
Given that Morningstar.com is a financial site, it's probably not surprising that several posters said their entrepreneurial activities centered around money and investing.
Dollarbits wrote, "Since retiring, I have started a personal-finance website, written an investing book, and am now writing articles for investing and personal-finance websites."
Other posters said that, in retirement, getting serious about their own portfolio and planning issues has been well worth their while. (Note that, in contrast to the aforementioned activities, income earned from management of a personal portfolio does not quality as "earned income," though it can provide some of the same financial benefits discussed above.)
By LarBar928's standard, nearly all retirees are de facto entrepreneurs because of the time commitment as well as income and tax ramifications of managing their portfolios. On LarBar's short list of ongoing obligations: "(1) transferring 401(k) money to traditional IRAs; (2) establishing ways of complying with the IRS requirements of yearly required minimum contributions; (3) deciding how to invest one's nest egg; (4) how to cope with the electronic revolution involving computers, the Internet, and the digital revolution that's sweeping the world of industry, finance, shopping, and day-to-day living, including the need to protect one's PCs, router, and personal data; (5) rendering one's tax returns electronically; and, of course, the list goes on. For us, our investments are now virtually like a business, and because of the taxes we're paying, my wife and I realize that we're making more money than we were receiving while we were 'working' for a living, and we're also paying more taxes."
For DrBobb, paying more attention to the family portfolio has been been fruitful, indeed. "I retired after a career as a corporate executive. My wife and I agreed that I would start a small 'business' managing our family 'mutual fund.' I have been doing it for four years and I love it. Our income equals what I was earning in corporate life and the capital gains are in addition to that. I spend about 35 hours a week studying the markets and Morningstar is one of my primary resources."
Seaside1 has had a similarly positive experience, though notes that strong markets have certainly played a role. "The decade-plus prior to my retirement was spent working full time and managing my parents' portfolio. After they passed away, I continued my portfolio-management activities and retired from the normal grind of daily commutes. What I found was that I made significantly more money in retirement than I ever did working for someone else. While I certainly do not expect this market to continue on with the vigor that has been evident in the past few years, I must state that my portfolio has grown dramatically during recent years."