I’m seeing a lot of elderly workers all over the place. Greeters at Walmart (sounds cliche, but totally true), grocery store baggers, parking lot attendants, couriers. It’s not my intention to denigrate anyone’s livelihood – an honest day’s work is just that. But I’m having trouble imagining a 70-something (or 80-something?) taking such a job out of anything short of necessity. A better option – if you can make it happen – is to create business income.
A lot of people will need some kind of earned income in the retirement years. Social Security and a pension (remember those?) can form an income foundation. But the majority of retirees will have inadequate (or non-existent) retirement savings. For most, developing some form of business income will be needed to fill the gap.
What’s wrong with taking a job? Nothing – in theory. But everything in reality.
First, there’s the age discrimination hurdle. Officially, it’s hardly acknowledged to exist. But unless you’re a highly trained professional in an ongoing occupation, it can be close to impossible to land a good job after age 55.
Next is the physical factor. A lot of the available jobs require a high degree of physical stress, even if it’s only passive. For example, for a lot of people over 60, standing for long periods of time is uncomfortable or even painful. You’re also not as strong as you used to be. Not everyone ages at the same rate, but even lifting light packages or pushing filled grocery store carts can be taxing as you age.
Then there’s the energy factor. We simply don’t have as much of it as we age. Physical requirements may necessitate more frequent breaks that employers aren’t willing to provide. You may also find yourself spent after a long day at work. That will leave you with less energy to enjoy what should be your “golden years”.
And finally, there’s misuse of your talent. If you’ve been out of the job market for a few years, it may not be possible to re-enter the field. You may find yourself working a job that completely ignores your best talents and skills. That’s a waste or human resources.
If you create a business income, you can do it in a way that overcomes each of the above limits. You’ll have a much better chance to customize your occupation with a business than with a job. What’s more, there’s an excellent chance a business can be home based, eliminating commuting, and giving you the “home field” advantage.
Not Everyone Will Invest Their Way to Retirement Nirvana
Let’s cut to the chase—in order to fully retire, and have enough income to pay your living expenses, and have enough to cover contingencies, and have some left over to continue to grow your investments so they don’t get wiped out by inflation—you’d have to have at least a million dollars saved up at retirement. More probably two or three million, given inflation. I’m just being realistic here—it truly is a tall order.
Do you think you can do it? If not, you need to be making other plans. A business income can fill the gap if your retirement savings are either inadequate or non-existent.
Holes in traditional retirement planning
While it’s possible to save up a million dollars (or even more) over 30-40 years, it won’t happen for most people—that’s a statistical fact. Investment models produce pretty results, but let’s face it, life doesn’t always cooperate with our plans!
Here are a few examples:
- Assumed rate of return on investment (ROI) may not support projections.
- In the pursuit of an ROI that will support your retirement needs you may take on too much risk and get burned for the effort.
- A future stock market crash could nullify years of retirement savings. That’s a serious risk if it happens near or during retirement.
- People DO make investment mistakes. So do financial advisors—we’re all human, and markets are unpredictable.
- Job instability may lead to erratic retirement funding.
- Long-term unemployment or under-employment means retirement isn’t being funded.
- The unemployed are often forced to draw down retirement savings.
- Interest rates on fixed income investments are far too low to provide a viable alternative to equity investments in volatile or falling markets.
In the financial world it’s an article of faith that we can invest to cover what ever needs we’ll have in retirement. But little is said about the real life that takes place between now and then. It often gets in the way of the best laid plans. In looking at the list above it’s unlikely you’ll be able to invest around any one of these issues, let alone a combination of two or more.
The ultimate reality is that life is not perfect and for that reason alone we need to have back-up plans. Business income can fill that niche perfectly.
Creating business income streams may be more important that retirement savings
That list might read like an exaggeration, but here’s why I feel confident in saying it: it takes a lot of money to create income streams from investments. For example, the convention on the “safe withdrawal rate” on retirement assets is 4%. In theory, you can withdraw 4% of your investment value each year and still maintain the value of your portfolio.
I think that’s more of an assumption than a convention.
If you withdraw 4% for living expenses, and inflation is running at 4%, you’d have to earn 8% on your investments in any given year. With interest rates hovering around 1%, that pretty much means you’ll need to have most of your money in the stock market in order to accomplish that (see items #2 and #3 in the previous section). Can you really do that?
To take it a step further, let’s say you project a need for $40,000 in investment income in retirement—how much money will it take to “buy” that income stream? One million dollars. Again, that’s a lot of money, and most people are unlikely to have it. And, thanks to inflation, the farther you are from retirement, the bigger that number will be.
That doesn’t mean you should abandon retirement savings. Quite the opposite, you should save for retirement no matter how old you are. But if you’re like most people, you’ll need a Plan B.
A “retirement business income” to the rescue
A business is dynamic—the income from it will adjust to whatever future price levels will be. You can grow it through your own efforts. It doesn’t depend on the ebb and flow of interest rates or on the performance of the financial markets.
Most important, it won’t require a million dollar investment!
That last point is critical. You can create a $40,000 income from a business without putting more than a few hundred or a few thousand dollars upfront. That’s truer in the Internet Age than ever. The growth will be driven by your time, effort and talent, not by your capital contributions. Best of all, when you’re finally ready to move from semi-retirement into full retirement, you can sell your business and have more money to add to your nest egg.
What kind of business?
This is really the foundational question. You probably don’t want it to be related to what you’re now doing for a living, but rather something you can enjoy. Think about a business you’ve always thought of having—maybe your dream business. Retirement should be a time to pursue dreams that weren’t possible earlier in life—seize the opportunity!
On a more practical level, here are some criteria to consider:
- The business shouldn’t be capital intensive. It should be skills-driven and thus easier to grow and to leverage.
- It should be a business that you have the talent, desire and skills for. Or the willingness to acquire them.
- It should be a business that doesn’t have age restrictions.
- Should be a field that has room for growth (that means avoid declining industries).
- It should be in an industry that affords a lot of time and work flexibility, and is driven by innovation. (Rigid industries are usually the ones that work purposefully to limit competition.)
- If it’s the kind of business you’d like to have even if you didn’t make a lot of money doing it, you’re probably looking in the right place!
My Own Real Life Example
I always wanted to be a writer, but almost 30 years ago when I first gave it a try I found it impossible to get past the “gate keepers”, who kept tight control over the industry. I spent most of the years since working in the mortgage business—and everyone knows what happened in that industry. My exit came at the end of 2008.
But something was different in early 2009 than it was in the early 1990s. We now have the internet and writers are needed all over the place. Goodbye gatekeepers, hello opportunity! I’ve been running this blog and freelance blog writing for others, and I’m making a comfortable living. And that happened in under three years!
During my years in public accounting, I actually knew a few of people who made money as artists and musicians. It can be done, but it rarely creates a living wage. They typically had other income sources, and did art or music on the side. But if you’re on Social Security and any other income sources, art or music can be a business income supplement. The retirement years should be the time to take that kind of chance.
You can do something similar. It requires a certain relentlessness, but it IS doable. Find a business idea you’re well suited for, and that you can believe in. Then charge forward with near reckless abandon. Even if you’re totally broke, you may find yourself no longer fearing retirement.
What about my retirement—do I ever kick back and enjoy a life of blissful nothing?
Here’s something I learned both from having my own business and from knowing dozens of small business owners during my public accounting career: the self-employed seldom want to retire as much or in the same way that salaried people do. I’ve known many self-employeds who have worked into their 70s and even 80s.
Employed people sometimes “put in time”, which is especially true in the last years before retirement. Self-employed people don’t sense the imperative to retire at all. If you own the business, it’s a part of who you are and you aren’t so anxious to abandon it. You also have the option to ratchet things down a bit, to take it easy if you choose. I have a lot of self-employed friends and the topic of retirement seldom comes up. Maybe it’s because they see it as quitting on themselves. Taken that way, retirement can and does look a lot different.
If you start running your own business there’s an outstanding chance you’ll feel the same way.
How do you make a business income a reality?
How do you create your own business? One step at a time is always best. If we’re talking about a business you’ll have in retirement, the process will be even easier. Since you probably have years before you retire, you can start a business now as a hobby business and grow it over the years just as you would a retirement portfolio.
Don’t put this off however, thinking that you can wait and do it a year or two before retirement. A business isn’t like a job that begins providing an income immediately. It could take years to reach that point. Also, your first effort could fail and you’ll need time to try again (and still again if necessary!).
Another important point: since you want any retirement business to be on the comfortable side, the sooner you begin, the more time you’ll have to fine tune the business and become “accomplished”. When you reach that level, businesses are often easy, or at least easy–er–and they blend a lot better with semi-retirement.
Retirement is likely to change fundamentally in the years ahead. As the saying goes, “the handwriting is on the wall”. It’s best to plan for that outcome.
Have you considered creating a “retirement business income”? Do you agree that this could be a viable option for people who have inadequate retirement savings or income?