Should You Start a Business in Retirement? Here's What You Need to Know

A female small business owner opened a store after retirement.

(Image credit: Getty Images)

Many people look forward to retiring so that they can stop working altogether. But a growing number of Americans are rethinking their approach to retirement and are integrating work into it to some degree.

Fidelity's 2024 State of Retirement Planning report found that since the pandemic took hold, remote and hybrid work have redefined what retirement means to a lot of people. A good 57% of respondents say they plan to continue to work at least part-time in retirement, and 68% look forward to working for pleasure.

Working during retirement can look like many different things. It could mean taking a traditional part-time job, consulting in your former field, or joining the gig economy. But for some people, it could mean starting a business.

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Starting a business in retirement can be a fulfilling experience that proves to be lucrative. But it’s important to approach the decision with caution.

Why start a business in retirement?

Many people struggle with retirement because once they leave their jobs for good, they lose their sense of purpose. Others have a difficult time not having a structured routine.

Starting a business helps address both of these concerns. Plus, it can serve as a nice source of backup income for retirees who are short on funds.

The Federal Reserve puts median retirement savings for Americans ages 65 to 74 at just $200,000 as of 2022, the last year for which it has this data. Many retirees manage to save more, as evidenced by the mean retirement plan balance of about $609,000 for that same age group. But for those who could use the money, owning a business could help fill a financial gap.

What are the risks of starting a business in retirement?

While starting a business could be a positive experience in retirement, there are some hiccups you might encounter. For one thing, your business may not take off.

The unfortunate reality is that 18% of small businesses fail within their first year, while 50% fail after five years. If your business doesn’t thrive, not only might it hurt you financially, but it might deal you a major mental blow.

There’s also the risk of ending up with a business that’s too time-consuming. When you own your own company, there can be many tasks to handle. If your goal is to strike a balance that has you working part-time in retirement, you may end up in over your head by taking on the role of business owner.

The financial reality of starting a business in retirement

If you decide to take the leap into starting a business in retirement, make sure to do your research beforehand, and to have an actual financial plan.

Opening a bakery may be something you’ve always dreamed of. But make sure you fully understand the work involved before moving forward, and that you have a well-thought-out business model. Otherwise, you might find yourself slaving away in a commercial space that costs you a small fortune to rent, only to end up starving for customers.

Along these lines, be very careful about the amount of money you sink into a business. You don’t want to dump half of your nest egg into a business that could potentially fail.

Kaveh Vahdat, Founder and President at RiseAngle, has 20 years of experience leading companies to major growth, and his advice is simple: “Never fund a business with money your livelihood depends on.”

Vahdat also says, “Retirement funds should never be used to fund or secure a business, because that money is typically irreplaceable. If the business fails, there is no time or earning runway to recover.”

He suggests focusing on ventures that require little to no startup capital. As an example, if you’re passionate about baking, rather than sign a lease for commercial space, try getting a license to work out of your home and see how that goes.

It’s also important not to count on income from your business right away. FreshBooks reports that on average, it takes businesses two to three years to become profitable. If your goal in starting a business is to generate needed income, you may be setting yourself up for failure. However, if your goal is to keep busy, then it may not be a problem if you don’t turn a profit for a few years.

Take a sabbatical and try out your business idea first

Of course, if you’re really passionate about a given business idea, one thing you may want to do is take a sabbatical ahead of retirement and test it out. If it proves lucrative, you’ll have a thriving venture to dive into once your career comes to an end. And if it flops, you’ll be able to pivot and come up with something new.

Get some perspective before starting a business

Finally, perhaps one of the most essential things to do before starting a business in retirement is to talk to people who have done it before. That way, you can learn from their wins and mistakes, and, just as importantly, have a more realistic idea of what you’re getting into.

Maurie Backman is a freelance contributor to Kiplinger. She has over a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. She has written for USA Today, U.S. News & World Report, and Bankrate. She studied creative writing and finance at Binghamton University and merged the two disciplines to help empower consumers to make smart financial planning decisions.