You just retired from a long and fulfilling career, but spending your days gardening and watching reruns on TV doesn’t sound like the ideal retirement. You don’t want to get lazy and lose your edge – you’re not alone. Many retirees are finding a resurgence of motivation in their golden years and are starting small businesses to secure additional funds in retirement and stay active.
Odds are you have marketable skills that can keep you active, healthy, happy, and supplement your retirement income. Starting a small business can be a rewarding experience at any stage of life, retirement is perhaps one of the most ideal periods to pursue a venture of your own. And since Americans 65 and older are more likely to be self-employed than adults of any other age group, according to the U.S. Bureau of Labor Statistics, if you do decide to kick off a business as a senior, you’ll be in good company.
Whatever small business idea you decide to pursue in retirement, you are going to need some capital to fund the initial start up expenses while you build a clientele. Given the current state of our economy, securing funds can be difficult. Here is a list of options that are most viable for a retiree:
- Get a bank loan
Lending standards have gotten much stricter, but banks such as J.P. Morgan Chase and Bank of America have earmarked additional funds for small business lending. So why not apply?
- Use a credit card
Using a credit card to fund your business is some serious risky business. Fall behind on your payment and your credit score gets whacked. Pay just the minimum each month and you could create a hole you’ll never get out of. However, used responsibly, a credit card can get you out of the occasional jam and even extend your accounts payable period to shore up your cash flow.
- Tap into your 401(k)
You’re retired and thinking about starting your own business, those funds you’ve accumulated in your 401(k) over the years can look pretty tempting. And thanks to provisions in the tax code, you actually can tap into them without penalty if you follow the right steps. The steps are simple enough, but legally complex, so you’ll need someone with experience setting up a C corporation and the appropriate retirement plan to roll your retirement assets into. Remember that you’re investing your retirement funds, which means if things don’t pan out, not only do you lose your business, but your nest egg, too.
- Leverage your home equity
Instead of risking your next egg to fund your business, consider leveraging your larges asset, your home. If you are 62 or older, you can apply for a reverse mortgage that will allow you to withdraw portions of the equity available in your home. While you draw funds from your home equity to fund your small business, a reverse mortgage will also stop your required mortgage payments, which will help in the initial business start-up phase. You can always pay off the reverse mortgage loan down the line if your business thrives. However, the real benefit is that you will not risk massive credit card debt or losing your next egg from using your 401(k) if the business fails. You will not lose your house either – with the reverse mortgage you will enjoy retirement from your comfort of your home. Contact a reverse mortgage specialist at FAR to see if this is a good option for funding your small business.
Whichever way you choose for financing, starting a small business in retirement is exciting! Good luck with your endeavor.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
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