Many retirement-related expectations of today's workers stand in stark contrast to the actual experiences of today's retirees. Consider the expectation of doing some level of paid work during retirement.
Several studies have found that about 70% of today's workers expect to continue working to some degree during their retirement years. And they're pretty confident they'll be able to—three out of four workers age 45 and older are "somewhat or very confident" they will be able to find paid employment during retirement.
Most of these folks envision working part-time, or even moving at their own discretion back and forth between seasons of paid employment and seasons of leisure. Some plan to work because they need the money, but others are motivated by the desire for stimulation and satisfaction.
It sounds so ideal, but it is disconnected from the realities of today's retirees—only 25% of whom have actually worked for pay during retirement. In many cases, health-related issues get in the way of plans for paid employment. Other retirees have found it's not so easy to find a job when you're in your 60s or 70s. As a result, less than a third of current retirees remain confident that their plans to work will eventually materialize.
A better alternative to job-seeking may be self-employment. This route offers the opportunity to create work you really want to do and to do that work on your own schedule. Working from home also may enable you to continue doing that work even if any health issues occur that would get in the way of commuting to a more traditional job. Plus, self-employment means there's no need to find a job at a time in life when age discrimination can become common.
But starting your own business is not a walk in the park. That's why, if the idea appeals to you, the time to start creating your own business is now, while you have the safety net of your current income. Here are some key steps.
1. Identify the business.
Usually, the most viable type of business to start is one related to the field you're currently in. If you're a teacher, you could become a tutor. If you're a corporate accountant, you could do taxes for individuals and/or small businesses. If you build houses, you could become a handyman. If you work as an administrative assistant, you could become a virtual assistant.
2. Understand the difference between a business and hobby.
According to the IRS, an activity qualifies as a business if "it is carried on with the reasonable expectation of earning a profit." An important benchmark the IRS looks for is whether you make a profit during at least three out of five tax years.
It'll help if you truly run your operation as a business. That means maintaining your business books and records separately from your personal books, opening a separate business checking account, having business cards printed, and obtaining any required business licenses and permits.
3. Choose a business structure.
The simplest form of business is one in which you simply hang out the proverbial shingle and operate as a sole proprietor. It is not a separate legal entity; it is simply you operating a business, although the business can have a unique name. You report business income and expenses on Schedule C of your individual tax return.
Depending on the nature of your business, you may want to set up a Limited Liability Company (LLC) or a "Sub S" Corporation instead. These can offer more personal legal protection should your business ever be sued. This is an important decision, so it's worth spending a little time researching the pros and cons of each type of legal structure.
Once you've decided on a structure, check with your state's department of revenue or secretary of state's office for information on how to register your business.
4. Fill in any skill or knowledge gaps.
The Internet has made it easier than ever to learn new skills. Just $25 will grant you one month's access to nearly 2,000 online video-based courses at Lynda.com. Topics include learning software programs such as Excel and Photoshop as well as business-oriented training (e.g., "Blogging for Your Business").
Coursera.org offers about 400 classes ranging from genetics to economics, and from biology to software engineering—all taught by professors from leading universities around the world. Many courses are free, although the Signature Track courses, which enable you to earn a certificate, cost $40 to $60 per course.
Many individual universities offer online courses as well—some for credit, others simply for the sake of gaining the knowledge. Of course, you could actually go to a classroom if you have a university or community college near you.
Another great resource for aspiring business owners is SCORE.org. This national organization, with nearly 350 local chapters, offers free business mentoring (in person or via e-mail) from a variety of business people, some of whom are retired and some of whom are still working. They also offer in-person and online workshops on everything from starting your own business, to keeping the books, to determining your business legal structure, and more. Some of the services are free; others, including some of the workshops, require fees.
One of the most helpful steps any new businessperson can take before starting a business is writing a business plan. SCORE offers free templates to facilitate this process. This can be a time-consuming exercise, but it should help you clarify your company's unique value proposition, market, competition, pricing, and more.
5. Launch your business.
The Internet has removed many of the traditional and most formidable barriers to entry into many forms of self-employment. During evening hours and/or weekends, you can start your business to see if you really enjoy doing the work and, importantly, whether it realistically appears to have income potential.
For example, if you'd like to be a professional writer, you could have a blog up and running within an hour. If you'd like to write a book, you no longer need a publisher; today, you can relatively easily and inexpensively self-publish, either a physical book or an e-book. If you're a crafter, you could open an online storefront at Etsy.com. If you're a graphic designer, you could shop your services via Elance.com. By the same token, Elance is a great source of inexpensive service providers that business operators of various types may find helpful. And if you need to raise money to make your business happen, Kickstarter.com may help you do that without even having to give away any equity.
Many books, blogs/websites, and other resources are available that teach the ins and outs of each of the ideas discussed here. But don't wait. If paid work is part of your retirement funding equation, it's a good idea to get started planning—and perhaps even running—the business that may help support you in retirement.
Matt Bell is Associate Editor at Sound Mind Investing. Since its founding by Austin Pryor 23 years ago, SMI has been providing clear, trustworthy, effective investment guidance to the Christian community. Some 10,000 subscribers look to its flagship publication, the Sound Mind Investing monthly newsletter, for biblical guidance on a range of financial issues and specific investment advice. Matt is also the author of four personal finance books published by NavPress, including Money, Purpose, Joy: The Proven Path to Uncommon Financial Success.
Publication date: September 23, 2013