Have you ever had one of those days at the office where you just wanted to walk out the doors and never look back? I’m sure we all have had those moments. As an executive, you may be at the point where that could actually become reality because you have become a work-optional household. If you’re considering retirement or are recently retired, this is an exciting time for relaxation, family, and friends.
The only problem is that many top-level executives have been movers and shakers their entire lives. When they retire, many don’t have a project or hobby that makes them feel truly alive. That’s why many retired executives see this time as an opportunity to pursue a new business venture. After seeing this many times with the clients we work with, we wanted to provide some tips for executives starting a business in retirement. Specifically, let’s examine considerations such as the capital needed to fund your business, options for leveraging assets to find that capital, as well strategies for protecting your assets to ensure your retirement nest egg stays safe.
How Much Capital Do You Need to Start a Business in Retirement?
The first question to ask when starting a business in retirement is how much capital will you need to fund your startup? This will depend on the type of business.
For example, one common business I see executives enter after retirement is real estate investing. Real estate investing is often a good choice for retired executives because you have options in terms of how involved in the business you want to be. The downside to investing in real estate is that it requires substantial startup capital. However, the upside potential that it presents makes it a great fit for any executive that has the additional funds to allocate toward this type of business venture.
Another business area I see executives entering after retirement is business consulting. Unlike real estate investing, business consulting tends to require less (and in some cases zero) capital to start. There is a broad range of consultants in the business world, from one-man shops run out of an extra bedroom in their home to businesses with hundreds of employees. There really is no ceiling to where you can take your consulting business, you just need to be able to scale yourself through processes, procedures, and potentially additional employees.
How to Fund Starting a Business in Retirement
Once you have made the decision on how you’ll spend your time in retirement, you need to consider where you will find your startup capital. Luckily, as a retired corporate executive, you likely have a few different assets in your portfolio that can help in funding your startup.
- Employee stock options: Depending on the type of options and how much they have appreciated, they could trigger a large tax bill. However, business startup costs could help offset some of those taxes.
- Retirement income: If you are receiving additional income in retirement from sources like Social Security or a pension fund, this income stream could be leveraged to start your new business.
- Investment portfolio: Withdrawing capital from your investment portfolio, when done correctly, can be a great source of funding. Be sure to work with a trusted advisor when doing so to avoid withdrawing during market fluctuations.
- Real estate assets: Depending upon the current real estate market and the amount of equity in each property, funding could be drawn from these assets, or they could be leveraged as part of a real estate investment business in retirement as well.
- Partners/personal network: Last but not least, you have built up a tremendous network of influential people as an executive. These people can be great assets in helping you fund your business, whether they help you make connections to new clients or partner with you financially.
Each choice comes with its own set of positives and negatives. Of course, you will want to factor in your unique financial situation before making a decision on financing. You will also want to consult with an experienced executive financial advisor to ensure that you are making the most informed financing decision.
Protecting Your Assets in Retirement
One consideration to make when leveraging retirement assets to start your business is how you will protect your assets not being used to finance your business, as well as asset allocation for those funds.
For example, if you choose to start a real estate investment business, any and all real estate that you own should be considered part of that asset class as a portion of your overall financial portfolio. This will allow you to be aware of your exposure to one asset class, and help you avoid too high of a concentration in one sector over another. By working with a seasoned financial advisor, you can develop strategies around your asset allocation throughout retirement to grow your business and protect your assets.
In addition, if you know you will require the majority of your retirement assets to live comfortably through retirement, you should consider a business that requires less capital to start and maintain. If you tie up too much of your nest egg in the new business, you could seriously jeopardize your future.
Make the Most of Your Retirement With Expert Guidance
No matter what type of business you choose to start in retirement, be sure to weigh the financial implications of the type of business you start and lay out a solid plan for financing your business without risk all of your retirement savings for you and your family. To do that, consult with a financial advisor before making a final decision. Work with an expert who can guide you with strategies to achieve success in your business and outside of it. It goes without saying, but part of being retired is also making sure you can have fun and enjoy it.
K. Wade Carpenter, CFP®, AIF®, ChFC®, CLU®, is an innovative wealth manager serving corporate executives and entrepreneurs from coast to coast. Throughout his more than 25-year career, Wade’s focus on C-level clients has made him a top strategist for equity compensation planning and asset allocation for executives. For more information on how Wade and the Carpenter Team can advise you on starting a business in retirement, reach out today for a complimentary consultation.
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