The Encore Entrepreneur: Older Americans Starting Small Businesses in Retirement
With an estimated 36.2 million small businesses across the United States, it comes as no surprise that small businesses are often called the “cornerstone of local communities.” Every year, during the first week of May, National Small Business Week brings focus to the entrepreneurs who drive local economies across the country.
While small businesses play a vital role in local communities, the people behind them are just as significant—and increasingly diverse in their backgrounds and life stages. A growing number of Americans are launching businesses later in life, often after they have already stepped away from full-time careers.
For many older adults, retirement can open the door to new professional—and potentially fulfilling— chapters. Some individuals start consulting practices built around decades of experience. Others launch small local businesses or turn long standing interests into income producing ventures.
This shift reflects changing expectations about retirement. People are generally living longer, staying active longer, and looking for ways to remain engaged in their community while strengthening their financial position.
“The journey of the small business owner doesn’t have a start or end date. For retirees who want to start this new endeavor, they should think carefully about how their savings can hold up to startup costs, ” says Martin Walcoe, President & CEO, David Lerner Associates, Inc. at David Lerner Associates, Inc. “
The Rise of Encore Entrepreneurship
Entrepreneurship later in life has grown steadily over the past decade. This demographic is often called the “encore entrepreneur,” as they approach a new business venture as a “second act” in their life. AARP reports that many Americans age 50 and older are launching businesses and actually have higher long-term rates of ownership for established businesses (lasting more than 3 ½ years).
Many professionals reach their 60s with deep knowledge, strong professional networks, and a desire to remain productive. Starting a small business allows them to use these strengths in a flexible way.
Encore entrepreneurs often bring a different perspective to business ownership. Unlike younger founders who may feel pressure to grow quickly, retirees frequently focus on sustainability and personal satisfaction. They may work fewer hours, limit overhead costs, and choose projects that align with their experience.
Deciding Your Business Path
For those with years of experience in an industry, consulting businesses can be one common path. A former executive may advise companies within the same industry. A teacher may offer tutoring services. A healthcare professional may provide training or education services.
Other retirees pursue ventures tied to personal interests. You might see a retired engineer launching a specialty repair service, or a longtime hobbyist turning craftsmanship into a small retail business. These ventures allow retirees to remain active while building an additional income stream.
Beyond income, many individuals value the sense of purpose that comes with running a business. Retirement can create extra time and freedom. A small business may offer structure and an opportunity to apply skills in new ways.
The Financial Benefits of Starting a Business in Retirement
Launching a business during retirement can offer several financial advantages when approached thoughtfully:
1. Additional Income
Additional income can help extend retirement savings. Even modest earnings can reduce the amount you withdraw from investment accounts each year. Over time, this can allow your assets to remain invested longer, which may help support long term financial stability.
2. Flexibility
Running a business can create flexibility. Instead of relying entirely on retirement income sources, you may generate revenue through consulting projects, product sales, or specialized services. This diversification can provide additional financial resilience.
3. Tax Advantages
Some business expenses may offer tax advantages when structured correctly. Office supplies, professional services, and other legitimate business costs may qualify as deductions. These deductions can reduce taxable income in certain situations.
4. Control of Workload
Retirees often appreciate the ability to control their workload. A business can scale up or down depending on your schedule and financial needs. During years when markets feel uncertain, additional income from a business may provide greater peace of mind.
Potential Challenges Retirees Should Consider
Starting a business at any stage of life involves risk. Encore entrepreneurs face several factors that deserve careful attention.
1. Start-up Costs
Initial startup costs can create pressure on personal savings. Some ventures require equipment, technology, licensing, or marketing expenses. Using retirement funds to cover these costs can affect the long-term sustainability of your investment portfolio.
2. Fluctuations in Business Income
Income from a new business may also fluctuate. During the early stages, revenue may take time to build. Retirees should prepare for this possibility and ensure they maintain adequate liquidity for living expenses.
3. Healthcare Needs
Healthcare considerations can also influence business decisions. If you rely on certain retirement benefits or coverage programs, additional income may affect eligibility thresholds or premium calculations.
4. Time Availability
Time commitment is another important factor. While many retirees enjoy the independence of running a business, entrepreneurship still requires discipline and organization. You may spend time managing finances, marketing services, or communicating with clients.
These challenges do not mean retirees should avoid entrepreneurship. They simply highlight the importance of careful preparation and ongoing financial guidance.
Tax Considerations Retirees Often Overlook
Taxes can become more complex when retirement income combines with business earnings. Many retirees receive income from several sources, including Social Security, retirement accounts, pensions, and investment portfolios. Adding business revenue to that mix can change how income is taxed.
Self-employment taxes represent one factor that new entrepreneurs sometimes overlook. Business owners must generally pay both the employee and employer portion of certain payroll taxes. Understanding how these obligations apply to your specific situation is essential.
Estimated tax payments may also become necessary. Unlike traditional employment, where taxes are automatically withheld from paychecks, business owners often need to submit quarterly payments to meet federal and state requirements.
In addition, the structure of your business can influence taxation. Sole proprietorships, partnerships, and other structures may carry different reporting requirements and tax implications.
Because these issues can affect retirement income and investment withdrawals, coordination matters.
How a Small Business Can Extend Retirement Savings
One of the most appealing aspects of retirement entrepreneurship involves the potential to preserve long-term savings.
When retirees rely solely on withdrawals from investment accounts, those assets must support living expenses year after year. If withdrawals occur during periods of market volatility, portfolio balances can face additional pressure.
Income from a small business may help offset that effect. Even part-time earnings can reduce the need to draw from retirement accounts during certain years. This allows investment assets more time to recover from market fluctuations and continue compounding.
A business may also create opportunities to reinvest earnings. Some retirees choose to direct a portion of business income back into their investment portfolios. Over time, these contributions can strengthen overall financial security.
The key lies in balance. Entrepreneurship should support retirement goals rather than disrupt them. Reviewing your situation allows you to evaluate how business income, retirement withdrawals, and long-term investments work together.
New Business Ventures During ‘The Golden Years’
Retirement today may look different from previous generations. Many Americans continue to seek purpose, engagement, and financial flexibility long after their traditional careers end. For some, starting a small business provides a practical path toward achieving those goals.
Being an entrepreneur is no small feat. Entrepreneurship in retirement offers meaningful opportunities. It can generate additional income, extend retirement savings, and allow you to apply decades of experience in new ways. At the same time, it requires careful consideration of taxes, startup costs, and long-term financial priorities. By approaching the decision thoughtfully, you can determine whether a business venture aligns with your personal goals and financial situation.
If you are considering launching a business in retirement, it can help to review how that decision fits within your overall investment strategy. Speaking with an Investment Counselor at David Lerner Associates can provide valuable perspective. We can help you evaluate income sources, and determine how your retirement strategy can support your long-term financial goals.
Material contained in this article is provided for information purposes only. It is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. These materials are provided for general information and educational purposes, based on publicly available information from sources believed to be reliable. We cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s circumstances. Each taxpayer should seek independent advice from a tax professional based on his or her circumstances.