Dubai: If you’re planning to start a business after you retire, you may be tempted by the prospects of earning an extra income, supplementing your retirement savings, and pursuing a dream of finally becoming an entrepreneur. But do the risks outweigh the benefits of doing so? Let’s find out.
While it’s widely believed that the most successful entrepreneurs start young, given that billionaires like Bill Gates, Steve Jobs, and Mark Zuckerberg were in their early twenties when they launched what later turned giant conglomerates, in reality, world statistics currently portray a reversing trend.
According to multiple surveys, the number of retirees over age 50 who started their own business has risen dramatically in the past decade, accounting for nearly 60 per cent of those who have started their own business, from around 30 per cent in the decade prior.
Another global study also showed that more than seven in 10 start-ups begun by retirees survived at least five years. So if you’re considering joining this fastest-growing segment of entrepreneurs aged 50 and over, referred to as 'seniorpreneurs' or 'olderpreneurs', here’s what you should know.
When you invest a portion of your savings into starting a business, you have the possibility of receiving a greater return on your investment than traditional stocks or bonds
Why should you start a business in retirement?
Newbie entrepreneurs who are over the age 50 or 55, also referred to as ‘encore entrepreneurs’, view their experience as an asset to starting a business. But how profitable is it start a business after you retire?
“When you invest a portion of your savings into starting a business, you have the possibility of receiving a greater return on your investment than traditional stocks or bonds,” said Brody Dunn, a wealth manager at a UAE-based investment advisory firm.
“Assuming an average 5 per cent to 8 per cent of return on your retirement savings, if you invest that same amount into starting a business, it could make two to three-times that amount in annual profit and savings. Plus, you are building a valuable income-producing asset.”
So as the owner of a functioning and operating business, you not only generate wealth that can go directly towards your retirement savings, but you then don’t have to rely solely on other investments or savings schemes.
Isn’t it risky to start a business post-retirement?
If you’re a retiree with just enough savings that cover your living expenses, you would be looking to boost your income to make ends meet. While starting a small business can fulfill such a need, there are costs and risks to factor in first.
“Unfortunately, in business, failure is a very real option. And if your business fails, you need to be able to survive,” said Dr. Rashid Hammad, a UAE-based independent business mentor and entrepreneurship coach. “So you must count the costs before you begin.
“Counting the cost of becoming an entrepreneur doesn't just mean finances, it also includes sweat equity. Retirement is a different season of life and, depending on your particular circumstances and the industry you enter, you could be making a bigger time commitment than you expected.”
However, the adage, "It takes money to make money" is true when starting a business. “While shelling out — depending on the industry — large sums of money up front is likely, taking on huge debt during retirement is a tremendous risk and should be avoided if possible,” Hammad added.
• DO NOT use all of your retirement savings for start-up costs. No matter how fool-proof your new business idea is, only use a small portion of your retirement income. While you may not lose it all, you need to be financially secure if you do lose it.
• DO NOT borrow against your existing investments. Monthly loan payments can cripple a new startup’s cash flow and growth potential.
• DO NOT get a business loan as it is best to not start your business with borrowed funds. A better strategy is to start small with your own fiscal resources and build your company slowly by reinvesting its profits.
What to know when starting a business post-retirement?
Regardless of your age, financial planners advise those looking to start a business to first have a handle on your finances and needs. “Make a plan for yourself, to ensure that you have your personal finances handled before jumping into any business ideas or plans,” noted Hammad.
“Once you have a business plan and a personal finance plan in place, you can figure out the startup costs. Many times these will depend on what you are able to put into it. Be prepared for unexpected expenses in your startup costs, and make an informed estimate on when the payoff will begin.”
Both Hammad and Dunn agrees that one of the most common mistake among entrepreneur is the desire to invest retirement capital into their new business. “While this makes sense for someone with a successful business, this is not a prudent decision for most retirees,” added Dunn.
“If your business fails, or is not generating a large income within a few years, you will be losing out on your livelihood during retirement over this decision. So instead, also seek out other financial opportunities or consider using the time to build credit. Then, your personal finances are secure.”