Have you always had a passion for a certain industry and considered starting a business that reflects that interest in retirement? While you may have the knowledge and expertise to own your own company, it’s important to carefully examine the financial and lifestyle requirements behind this choice before you jump into anything too quickly. The following are good points to consider prior to starting your own business during your golden years:
1. Think about the time commitment
Before starting your company, consider whether you’d like it to be a full-time venture, or more of a side hobby. Perhaps you need extra money in retirement, or you simply enjoy keeping busy at something you enjoy. These latter types of retirees may plan to continue working 40-plus hour weeks as long as their health allows. If this is the case, you may want to meet with a financial expert to see it might be more profitable to hold off on retirement for a few more years.
On the other hand, if you have substantial retirement savings and wish to run your business as a fun side hobby it’s a good idea to establish those hours ahead of time so you don’t get in over your head. Come up with a schedule that’s realistic for your lifestyle goals and stick to it. If increasing your leisure time is a goal, you may want to figure out how to keep your business running while cutting down on your time commitment.
2. Analyze your retirement benefits
Remember that continuing to earn a certain amount of income in retirement could affect your retirement benefits. For instance, if you are age 65 or younger and earn more than $15,720 in 2016, part or all of your Social Security benefit could be temporarily withheld depending on how much you earn. However, after your 66th birthday there's no longer any withholding if you earn above the limit.
Continuing to work could also make your Social Security income taxable. For 2016, your Social Security benefits will become partially taxable if your adjusted gross income, nontaxable interest and half of your Social Security benefit is more than $25,000 for individuals and $32,000 for couples. If these income sources are over $34,000 for individuals and $44,000 for couples, a larger share of your Social Security benefit, but not all of it, will be taxed. For these reasons, before signing up for Social Security, it’s a good idea to calculate just how your earnings from your new business could impact your Social Security income in retirement.
3. Look at the expenses involved
What are your financial needs in retirement? If you need to reach a certain number each month in order to maintain your retirement lifestyle and/or cover your living expenses, find out what number is before establishing your business so you know what specific goals to reach for.
Remember you’ll probably need to use some of your own personal savings to get your company started. While some businesses—such as a blog or a small crafting business can be established with for just a few hundred dollars or less, others cost thousands or more to start up. Do your research on all the materials, supplies, subscriptions, and/or training sessions in which you’ll have to invest in order to get things going. Figure out how much you can safely afford to put into your business and don’t make any financial commitments that you can’t risk losing.
The bottom line:
It’s important to look before you leap into business ownership. It may be a good idea to also go over the above steps with a financial professional in order to ensure you’re completely mentally and financially prepared for everything owning your own company could entail.