Are You “Too Old” To Start a Business?

by Jessica Sommerfield · 11 comments

I read an article recently that detailed the story of a retired Florida couple who used their personal savings to start their own business. In their case, it was worth the risk, since they’re now preparing to open their third location and are earning full salaries.

This type of move might seem unsafe, especially for those who live on fixed incomes or only have savings in the form of their 401K or IRA. But despite all the financial red flags, studies show that about 35% of new businesses in 2013 were launched by people over the age of 50.

Since these people aren’t in their prime, and may not be able to recoup their losses as easily, this sounds like a risky venture. So, why are so many retirees choosing to start businesses?

A lack of other options

With recessions and sluggish markets, your retirement accounts might be struggling. If you’re not quite retirement age, you might be out of work and collecting unemployment. It’s no secret that it can be hard to land a job when you’re competing with a younger, more energetic, more adaptable workforce.

Or, after working your whole life, only to find that you now have nothing better to do than read the morning paper and watch the birds, you might desire a new purpose in life. Maybe starting your own business is something you’ve always wanted to do, but never had the time (or money) for.

How to fund your business venture

That sounds great, but where do you get the money?

You can’t withdraw from your retirement accounts without early withdrawal penalties — not to mention that doing this puts your future income at risk. Unfortunately, there aren’t many ways to get around this. There is a way for retirees to use retirement funds for business expenses, but it’s extremely complicated and easy to get penalized by the IRS if you don’t do it right.

Instead, many retirees are using one of the following ways to fund their new business ventures:

  • Personal savings
  • Small business loans
  • Loans from family or friends
  • Partnerships with established businesses
  • Crowdfunding or crowdlending

Using personal savings to fund a new business is a personal risk, though at least you wouldn’t be ruining your credit or risking bankruptcy. But, in the event the business fails, you won’t have an emergency fund.

Small business loans can be hard to get when you’re retirement age, because you’re considered more of a risk. Getting approved is possible, but you’d have to provide more than just a business idea; you’d have to prove your business can make money, and fast.

Loans from family and friends would take away some of the pressure that comes with a formal loan, but you’d still have to pay them back eventually, or risk ruining your most important relationships.

Partnering with established businesses seems like it would be a wise option, although you’d probably have to be willing to share ownership or certain rights, at least for a while. The other business would absorb some of the financial risk and help build your business’ credibility.

A new, interesting way to raise money, and not just if you’re a retiree looking to start a new business, is crowdfunding. It’s basically the concept of using social media to advertise your business idea, then ask for donations to fund it. If you reach your set goal, you pay the site a percentage of your profit; if you don’t, none of the donations go through. This is a very low-risk (and fun) way to put yourself out there, with only the risk of looking or feeling like a charity case.

Now that I’ve shared some ways for you to fund your business idea, how would you answer the question: “Are you ‘too old’ to start a business?” 

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{ 11 comments… read them below or add one }

Phil March 21, 2014 at 6:25 am

Great story, and I want people of all ages and stripes to consider starting their own business.

That being said, I really am concerned about someone losing their lifetime savings starting the business. It is important to not make any rash decisions or “bet” more money than you could lose.

Here are my considerations before starting a business:

1. Start small.
2. See if you can find or make money for your business other than borrowing from your retirement.
3. Have an exit plan, and know how much you can recoup if your business does not work.
4. Have a good business plan moving forward. Learn as much as you can.

My goal is to save $20,000 to start my own business. I am ready and willing to lose it all. As a school teacher, this is significant money for me. But I will not dip into my retirement, or even stop contributing to my retirement.

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David Ning March 21, 2014 at 11:16 am

Starting small is a great idea. It’s important to test the business model out to make sure it’s a good fit first.

And Phil, do you already have an idea you want to pursue when you manage to save $20,000? If so, could you do any ground work before you reach the savings goal?

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John @ Frugal Rules March 21, 2014 at 6:53 am

It’s great to see that retirees are starting their own businesses. I was about 37 when I started mine and I felt that I was too old, but that was really just a feeling more than anything.

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David Ning March 21, 2014 at 11:19 am

37 is definitely not too old. You’ll still be well under 50 when you celebrate the 10th anniversary of your business!

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Alex @ Credit Card XPO March 21, 2014 at 7:57 pm

I applied for a business credit card that offered 0% apr for 6 months to fund my first business 10 years ago. It was definitely a risky move so I’m glad it worked out ok. =)

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David Ning March 23, 2014 at 8:59 pm

Wow that’s gutsy. Nice move, as you are obviously still on top of things after a decade!

Those 0% balance transfer cards could be dangerous, but it’s amazing what people can do with an interest free loan.

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Marie @ My Personal Finance Journey March 21, 2014 at 10:37 pm

It’s nice to hear that oldies can start their own business. At least their retirement fees were used in a nice way. In fact, they can formulate exercise with their business too rather than staying at home and sitting.

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David Ning March 23, 2014 at 8:59 pm

Cashing out retirement funds to start a business definitely isn’t for everybody, but it could work for some.

I would start by seeing if there are other ways to get funding though, such as a small business loan or crowd-sourcing etc. You don’t want to jeopardize your retirement for something that may not pan out!

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Marie @ My Personal Finance Journey March 22, 2014 at 3:12 am

For me, it’s never too late to start a business even if you’re old already, as long as you have goals and want to try different ventures. But you shouldn’t use your retirement fund to start a new business, you can use your personal savings or you can try to borrow from your family.

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Quincy March 22, 2014 at 7:28 am

I don’t think that you are ever to old to start a business. In the Netherlands a lot of people have lost there jobs, and the fact that many slightly older people are competing with younger prospects makes it more difficult to land the job.

To start a business does take a lot of courage, a good business plan and funding. Since the crisis banks are not eager to provide loans, so smart thinking is crucial.

The points as mentioned above from phil are good to keep in mind. In the Netherlands the government has several options where you can start a business while keeping your unemployment check for a certain amount of time.

This will give people a certain amount of time to get there business of there ground, while not have to worry about have to pay for the monthly costs.

However once you are making a certain amount of profit, this will get settled with the unemployment check.

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David Ning March 23, 2014 at 9:03 pm

Allowing people to keep their unemployment check while starting a business is an amazingly clever idea. This way, the incentive is to create income right away instead of the usual unemployment system where they discourage you to look for even part time income while you are unemployed.

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