Should You Risk Your Retirement Nest Egg to Start a Business?

Many Baby Boomers intend to start a small business in retirement. According the a Merrill Lynch report called “The New Retirement Survey” about 13% of Baby Boomers intend to start their own small business. There are about 77 million Baby Boomers so that means approximately 10 million could start a small business in retirement.

This may sound like the perfect solution but is it? I’m a Baby Boomer myself. I’m not a gloom and doom merchant. I’m a realist. What I believe in is facing my own situation and honestly assessing the likelihood of success.

So before we should even consider retiring or purchasing/starting a small business we need to take good look at our financial position.

The number one principle is to protect our nest egg in retirement, so we can live off it for the next 25-30 years. So this needs to be secured first. Then we can look at starting a small business.

Well-off Baby Boomers can easily park enough money in a retirement nest egg and then use the excess to invest in a small business if they chose to. But they may be less likely to want to start a small business because they are wealthy.

Baby Boomers who have enough for a nest egg and no more really need to consider their options. This is the most vulnerable group because it is vital they protect their nest egg but they also may need it to finance a small business. They are the ones that could be most susceptible to the marketing hype to either invest their nest egg in a business or borrow money based on their assets to finance a small business. Either way they break the first rule of retirement – protecting their nest egg.

Baby Boomer who have not saved enough to have a nest egg really should consider the risks of borrowing money at this time in their lives to start a small business. This is especially so if they still have a mortgage on their house or have other debts.

Buying or starting a small business is a risk for people half our age but…

They have time on their side to recover a financial loss if the business fails. We don’t have that time. So that is why we should not risk our nest egg either by investing it or by borrowing against our assets.

Here are some sobering statistics from the Counselors to America’s Small Business:

Small Business Survival Rates

Small Business Openings & Closings:

There were 671,800 new businesses, and 544,800*business closures.

Two-thirds of new employer firms survive at least two years, and about 44% survive at least four.

Findings do not differ greatly across industry sectors.

*Not all closures were due to bankruptcies.Sources: U.S. Small Business Administration, June 2006.
Survival and Longevity in the Business Employment Dynamics Database, Monthly Labor Review, May 2005. Redefining Business Success: Distinguishing Between Closure and Failure, Small Business Economics, August 2003.

So less than 50% of new small businesses last at least 4 years. These are not good odd even for a person in their 20’s or 30’s. You will not be able to avoid a large loss to your nest egg if the small business fails.

There are other factors too to consider which add to our risk profile when investing our nest egg in a small business. A major factor is our age – it must be considered.

At 60-plus the insurance companies think we are a higher risk than when we are 30. We should too. We need to consider our health, not just now but in the next 5-10 years. It can take 5 years to get a small business established if we are one of the 44% of businesses still surviving after four years. So if we are successful it could be that we are 65-70 by the time we can sit back and relax a bit. Is that what you really want to do? Starting and running a small business can be tough.

I found some interesting statistics about Baby Boomers at Ageless Marketing (a blog well worth a visit for some interesting posts). It seems we are not as fit and healthy as earlier generations were at the same age.

For instance:

“Twelve years ago, 15% of women among 51-56 year olds reported difficulty getting up from a chair. Today, that figure is an astonishingly 33%. For men, the figures are 11% and 22%, respectively.”

See this Health Decline in Baby Boomers from the Population for Aging Center | The Washington Post.

Do your own small test and try getting up from a low arm-chair and be conscious of how easy or hard it is to do. If you struggle to get up then maybe reconsider your options.

And here is another very important observation:

Currently, 22.5% of the U.S. population is considered to be clinically obese, as compared to only 14.5% in 1980. That’s a 50% increase in obesity.

This information was in a research report prepared for the National Bureau of Economic Research and supported by the National Institute of Health.

If we are overweight and can’t even get off a chair easily, what chance have we of lasting 5 years getting a small business up and running with a national failure rate of 66%?

Okay, I know some Baby Boomers will succeed regardless. But we need to work out our own risk and decide what is best for us. Risking our nest egg is not a good thing to do. There are ways to invest in a small business but with a very small capital outlay which I will talk about in another post.

I’m talking here about small business that require a large capital outlay. These are the ones that will be made most attractive to us with heavy marketing and promotion. So my advice is don’t risk your retirement nest egg to start a small business.

2 Responses to “Should You Risk Your Retirement Nest Egg to Start a Business?”

  1. […] unknown wrote an interesting post today onHere’s a quick excerptMany Baby Boomers intend to start a small business in retirement. According the a Merrill Lynch report called “The New Retirement Survey” about 13% of Baby Boomers intend to start their own small business. There are about 77 million … […]

  2. Rita says:

    Sounds like good advice.

    Maybe you can do a post about boomers setting up a small business without risking your nest egg.

    I write a blog for boomer consumers called The Survive and Thrive Boomer Guide at


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