Entrepreneurs and the retirement trap

Posted on March 9, 2010 | Leave a comment

Entrepreneurs and the retirement trap

(Editor’s note: Rick Rodgers is an author, keynote speaker, wealth manager and president of Rodgers & Associates. He submitted this column to VentureBeat.)

Many entrepreneurs believe they don’t need to plan for retirement. Sadly, they’re quite mistaken.

Too many start-up owners actually view their business as their retirement plan. And while creating a valuable company that could eventually be sold or go public may indeed provide a comfortable retirement, it’s no way to plan. It’s the equivalent of asking a financial advisor to put all of your savings into a single stock. Sure, if you hit a home run you’re set, but no prudent planner would ever recommend such a strategy.

Only 35 percent of small business owners had some sort of retirement plan in 2007, according to Harris Interactive’s ShareBuilder Small Business Annual Retirement Trend survey. In 2008, that number dropped to 26 percent.

It doesn’t take a 401(k) plan to start retirement saving. A Roth IRA is an excellent tool for early start-up owners, who generally aren’t seeing notable paychecks. While it offers no tax advantages as you fund it, you’ll see significant benefits when the time comes to withdraw the money. (Withdrawals are tax-free if the account is at least five years old and you are age 59 ½ or older.)

Once your business starts to grow and income taxes become more of a concern, you might consider switching your contributions to a Traditional IRA, where contributions are deductible.

Currently you can invest (and deduct) up to $5,000 per year. If you want to deduct more than $5,000, switch to a SEP (Simplified Employee Pension) IRA, which allows you to contribute up to 25 percent of your net self-employed income.

(Note that you’ll also have to cover eligible employees in a SEP IRA, so be sure to check with your accountant or financial planner before setting up this type of account.)

Unlike Roths, Traditional IRAs and SEP IRAs give you tax benefits up front, when you make the contributions.  Distributions from these accounts will be taxable when you take the money out.

While feeding the start-up monster is hard to resist – especially when funding is tight – it’s critical to diversify your funds into investments other than your business. And there’s no time like the present to start.  Time is your biggest ally in retirement planning. As Einstein said: “The most powerful force in the universe is compound interest”.

Also, just as you perform a quarterly review of your company’s finances, take time to review your own retirement position every few months, with the objective of raising it.

If your start-up ultimately attracts a buyer or, better still, goes public, you’re certainly no worse off. But if your company becomes one of the sad (statistically likely) failures, you’ve started the process of ensuring a semi-soft landing in your later years.

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Life Expectancy at Retirement

Posted on March 2, 2010 | Leave a comment

From Greg Mankiw’s blog http://gregmankiw.blogspot.com/

Life Expectancy at Retirement

Source: The Economist.  Click on graphic to enlarge.

Americans, as well as citizens of many other advanced nations, now spend about twice as many years in retirement as they did a generation or two ago.  During that time, they expect the government to provide them with income support and healthcare.  Is it any wonder that we face serious fiscal problems?

I hope the president’s fiscal commission makes raising the age of eligibility for these programs one of its main recommendations.

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How Recession Is Redefining Retirement

Posted on February 3, 2010 | Leave a comment

How Recession Is Redefining Retirement

June 18, 2009

As hard as it might be for some to believe, the notion of retiring at the age of 65 or thereabouts is a fairly recent phenomenon.

In the United States, according to a 1999 New York Times article, “The History of Retirement, From Early Man to A.A.R.P.,” the roots of the movement largely trace back to the Great Depression, when high levels of unemployment stirred efforts to encourage older workers to lay down their tools and allow those who were younger to take their place.

Under the circumstances, some might find it ironic — or, perhaps, tragic — that a similarly calamitous economic environment has spawned, as USA Todayreveals in “For Boomers, Recession Is Redefining Retirement,” a reversal of that decades-long trend.

They grew up during a time of cultural change, and now are being forced to redefine retirement at midlife.

The 77 million Americans in the Baby Boom generation face an economic storm: The Wall Street meltdown trampled their retirement nest eggs more than any other group. After losing jobs during what they thought would be some of their peak earning years, many are struggling to get back into the workforce. Health care costs are rising, and declining home values mean they might not be able to count on home equity to guarantee an easier retirement.

“This generation will be sobered by their experience,” says John Coyne, president of Brinker Capital, an investment management firm. “They may not have as extravagant a vision of retirement as they did last July.”

Meanwhile, a post at the New York Times’ You’re the Boss blog, “Recession Driving Start-Ups,” highlights another interesting sign of the times: the expanding ranks of elderly entrepreneurs.

self-employment

Source: Calculated from data on the Bureau of Labor Statistics Web site.

Self-employment rate by age in December 2008 and April 2009.

In the past couple of weeks, I have been contacted by reporters who were writing stories about the growth in the number of young entrepreneurs. Given the bleak job market facing young people, I guess it isn’t too surprising that attention is turning to youth entrepreneurship as we enter the summer job season.

But is it really young people who are shifting toward entrepreneurship during the recession? In search of an answer, I compared self-employment rates by age groups in December 2008 and April 2009. As the table shows, the numbers don’t suggest a big rise in entrepreneurship among young people over those months. Self-employment rates rose among people 16 to 19, but fell among those 20 to 24.

On the other hand, self-employment rose sharply among those 65 and older during that same period — almost two percentage points, from 16.3 to 18.2 percent. While the self-employment rate has been higher among people 65 and older for a while, the gap between the self-employment rate for the 65-plus age group and the next highest group (55 to 64) has grown.

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Elderly Entrepreneurs Thrive

Posted on February 3, 2010 | Leave a comment

Fox News, Elderly Entrepreneurs Thrive

Posted by MKWeb in Featured Articles on January 17, 2010

Older Americans took more entrepreneurial risks in 2008 while their younger counterparts took fewer.

New research shows that entrepreneurial behavior among older Americans (44-99) rose significantly in 2008. Younger adults in the 18-44 age range — traditionally the hotbed of US entrepreneurial activity — reduced their entrepreneurial activity in 2008, according to the Global Entrepreneurship Monitor’s 2008 National Entrepreneurial Assessment for the U.S., produced by Babson College and Baruch College.

Babson College Entrepreneurship Professor and GEM author Julio O. de Castro, said she believes the increase in entrepreneurial activity by older Americans presents some interesting questions to consider in the next GEM report: “Is this a temporary or permanent trend? Or just a reaction to the economic recession?”

Entrepreneurial activity across the globe also took a dip, the number of people starting businesses with the potential to boost the economy and create new jobs declined 10 percent in the wealthiest nations during the recent global slowdown, according to GEM’s research.

“Throughout the world, would-be entrepreneurs reported greater difficulty in obtaining financial backing for their start-up activities, especially from informal investors– families, friends, and strangers,” said Professor Bill Bygrave of Babson College, one of the founders of GEM. “This pool of money declined from $400 billion to $350 billion, a 12.5 percent drop.” This comparison is for 33 countries that participated in both the 2008 and the 2009 GEM surveys.

But there may be light at the other end of the tunnel of innovation.

In 2009, even as the number of people starting businesses in wealthy countries declined, a quarter of new entrepreneurs felt the prospects for their businesses are rosier than a year earlier, according to GEM’s research. New entrepreneurs tended to be more optimistic than established business owners.

“Clearly, the slowdown has led to changes in the environment for entrepreneurs with investors holding back financing and consumers buying less,” said Kristie Seawright, Ph.D., Executive Director of GEM. “What is needed is for entrepreneurs to feel comfortable venturing out again, because they are the real engine for creating new jobs.

Unfortunately, there is not a silver bullet for entrepreneurs. Each country needs to develop the right formula to encourage business startups.”

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Pop up Retail

Posted on December 10, 2009 | Leave a comment

The following is a posting from the Springwise blog. (Springwise and its network of 8,000 spotters scan the globe for smart new business ideas, delivering instant inspiration to entrepreneurial minds.)

“Pop-up retail is a concept we’ve been covering for years, generally focusing on a store that opens for a limited time in an otherwise unused space. Turning that notion on its head, in some respects, is Planeshop, a permanent store opening soon in the Glasgow Airport that will be periodically taken over by a different brand.

The brainchild of the founder of Vacant —which was probably the first pop-up store way back when—Planeshop is billed as a permanent shop with a flexible retailing concept. Brands will take over the store for a limited time, including changing the shop’s exterior graphics to match their identity. Currently, consumers are invited to vote for the brands they’d most like to see in that role. No word yet on how long each brand will stay in place, but once that time is up, another brand will move in and take over, ensuring that there’s always something new to see in the store. Also available at Planeshop will be Planemix, a downloadable selection of global digital music tracks that rotates each month, and “Foodflight,” a selection of tapas and sangria for takeout or in-store dining.

Planeshop’s flexible retail concept is patent-pending, the company says, and it seems safe to assume that brands are currently lining up for a spot in the store’s rotating roster.”

(Related: Retail space helps brands collaborate — Store perpetually reopens.)

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Posted in business ideas for mature entrepreneurs, entrepreneurship after 50 trend, start up ideas

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How To Find Your Passion

Posted on December 10, 2009 | Leave a comment

From the Toilet Paper Entrepreneur

If you’re going to make it as an entrepreneur, you better have passion for what you’re doing. It’s cause and effect—passion begets persistence and persistence begets success. If you do what you love you won’t give up until you succeed. Pretty basic, right?

While this message is 100% simple and 100% true, finding your passion can feel like a mystery you’ll never solve. Until today.

If you have the desire to succeed in business but aren’t sure what you really want to do, here’s a surefire way to figure it out. Make a list of answers to the following questions:

1. What’s the first thing you want to do when you get some free time? What activities do you find yourself saying, “yes” to most weekends? What do you like to do on vacation?

2. What do you love most about your job? Which tasks do you look forward to doing? What aspects of your job come easy to you?

3. When you look back on your life, what were your proudest moments?

4. What causes do you feel passionate about? What have you volunteered for or donated money to in the past?

5. Outside of work tasks, what do you Google most often? What type of blogs do you gravitate to; what kind of books do you read? What are your hobbies?

6. What are the most outrageous daydreams you’ve had about your life?

7. When you were a kid, what do you want to be when you grew up? List all of them—even Wonder Woman.

8. If you could go back to school and be guaranteed a fantastic, crazy-good job in your field right after graduation, what would you study? Or, if you had loads of free time and didn’t have to worry about a degree or a job, what would you like to learn more about?

9. If you never had to worry about money again, what would you do with your time?

10. If the movie of your life was up for a Best Picture Academy Award, which clip would they show on Oscar night?

The entrepreneur’s path can be rocky. You’re going to get knocked down. A lot. So you better build your business around what lights you up inside, otherwise you won’t have the will to get back up.

You’ve got passion. You do. Really. Don’t believe me? Look at your list.

By Mike Michalowicz, Author of The Toilet Paper Entrepreneur

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