The face of the typical startup entrepreneur these days is a bit wrinkly, sporting some gray hair, and having the wisdom that comes with age. But is it a good financial move to start a business late in life?
According to recent research, these days those 55 and over are more likely than young people to be starting businesses, says Professor Scott Shane, writing in BusinessWeek.
He cites research by Dane Stangler of the Ewing Marion Kauffman Foundation that showed in every year from 1996 to 2007, Americans aged 55 to 64 had a higher rate of entrepreneurial activity than those aged 20 to 34.
Corroborating this data, the 2008 U.S. Global Entrepreneurship Monitor report released recently showed that from 2007 to 2008, the rate of entrepreneurial activity (that is, people actively starting businesses and people owning established businesses) among senior Americans increased while the rate among younger Americans declined.
Shane also assessed November 2009 Bureau of Labor Statistics data on unincorporated self-employment, and found that it increased substantially with age. He also assessed data on incorporated self-employment. Shane found, “The incorporated self-employment rate is four times higher among those aged 65 to 69 than among those aged 25 to 34—and a whopping 25 times higher than among those aged 20 to 24.”
What’s the reason for the increase in older entrepreneurs? Scott posits some theories: Perhaps the older generation is more entrepreneurial, or perhaps they have more job skills and thus the confidence to go into business for themselves.
I agree that those reasons fit some cases. But here are two other possibilities:
(1) Many people at age 55 and up tend to be at a stage in their lives where they can afford to pursue long-held dreams of owning a business. Chances are, they are empty nesters. They don't have the expenses they had while raising children. Their homes may be paid for. They may have accumulated savings that they are now free to use. In fact, they may have enough financial cushion that even if the business doesn’t work out, it won’t make much difference in lifestyle – they can afford to lose it. In later life they just may be in a better financial situation to take the risk of starting a business and pursuing that startup dream.
(2) On the other hand, it may be that those age 55 and over are starting their businesses due to being laid off -- and unable to get another job. Self-financing a business is more prevalent among older entrepreneurs. So -- what if older entrepreneurs are tapping not only into severance pay, but also into retirement accounts? Are they giving up their retirement future to start a business? This is a risk that could pay off – and pay off big -- if the business is successful. But if not successful, it could mean a difficult and less secure retirement for you and your spouse. Because at that age, you have far less time to start all over again if your startup doesn’t pan out.
The decision to tap into retirement funds for your startup looks very different when you have 20 or 30 working years left ahead of you, versus 5 or 10.
I’d love to hear from some entrepreneurs who started a business at age 55+. Has it been a good financial move for you? Did you use retirement funds?