First Person: Self-employment in Retirement Isn’t Right for Everyone

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Having been self-employed for nearly six years now, I can tell you that it's not always the easiest route. So when I saw a recent CNBC article entitled, "Self-employment helping baby boomers stretch retirement savings", I was intrigued.

The article noted, "A recent survey by AARP found 10 percent of workers ages 45 to 74 plan to start a business and 15 percent workers in this age range are already self-employed. Some start a business due to a job loss, others had already retired but weren't ready to fully stop working. On average, self-employed workers in their 40s or 50s may spend nearly two decades working for themselves, the AARP study found."

However, having experience in the world of self-employment, I would urge some degree of caution to those considering it for retirement, and I would advocate that they take some time to think things through before jumping headlong into this work or career option.

Consider the type of work

There can be significant differences in the type of self-employment roles available. Some options -- like mine as a freelance writer -- are relatively low risk and are low in physical requirements. Things like jewelry making, consulting, and or selling on eBay could be other options where there is lower financial risk to entry.

Meanwhile, doing something like starting a culinary endeavor like opening a restaurant, starting a house painting business, farming, and other labor or management intensive self-employment roles at age 55 or 65 might just be too much for certain individuals and could put them in a situation that is risking more of their retirement nest egg than the potential rewards could be worth.

Working out startup costs

Considering the type of work can help with laying out startup costs. Some roles such as mine as a writer take almost nothing to try out. Other roles such as starting a restaurant or a store where labor, rent, inventory costs, and other initial overhead can be high may be much more costly.

This is why it can be so important to do a startup cost analysis before jumping into anything too quickly. A co-worker of a family member had a husband who decided to pursue his dream of opening a small café in retirement. He ended up losing most of his retirement savings and now his wife is forced to continue working, probably for the remainder of her years to support them.

Creating a list of potential costs and their associated amounts can provide a better idea of where costs lie. Some items might include:

  • Leasing the space for a business location
  • Utilities
  • POS (point of sale) system cost
  • Labor
  • Furniture, fixtures and equipment
  • Permits/licenses
  • Inventory
  • Insurance
  • Taxes
  • Advertising/marketing
  • Legal fees
  • Office supplies

Financial considerations: Risk vs. reward

There is also the risk versus reward side of the finances to consider. Just how much of a retirement nest egg can be risked? Are there other options for that money that might result in income but at a lesser risk such as investing in an annuity, bonds, dividend reinvestment plan, real estate, or paying off debt? Would such options be safer than chasing a dream that might not pay off at a time when you may not be willing or wanting to start over? And are you up to the challenge of self-employment mentally and physically and in what capacity, or would you rather relax a little in retirement?

If you're unsure of the answers to such questions, it might be worth taking some time to read about others' experiences first. While it can be awesome to chase a dream and be your own boss, it can be a heck of a lot of work and not all that financially rewarding. So as a low-cost, low-risk supplement to retirement income, I'm on board with the idea of self-employment; but otherwise, some serious consideration should probably be taken before jumping into an endeavor and putting retirement savings at risk.

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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.


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