The 60-Something Entrepreneur: Can a Start-Up Pay for Retirement?

Baby boomers who thought they were on the cusp of retirement have suffered more than any other group in America. Here's one way to fight back: Start a company.

Baby boomers who thought they were on the cusp of retirement have suffered more than any other group in America. Here's one way to fight back: Start a company.



It's rare for couples these days to stick together for as long as John and Patsy McArthur have. Both now 63, they met in high school in rural Red Springs, N.C., and never ventured far. In their 45 years together, they have run a farm and, since 1987, a contracting business. As recently as 2008, when the housing market was booming, annual revenues of their 60-employee McArthur Construction topped $14 million. This got the McArthurs thinking about selling their company and using the proceeds to ease into retirement, figuring to travel and spend more time with their grandchildren.

Oops. That was before the bottom fell out of the real-estate market. When it did, the McArthurs quickly sold some equipment, paid down debt, and scaled back their payroll by cutting the staff to 45. They closed their office in Charlotte, where the building boom had gone bust, and moved the business back near home, where rent and land cost less. "We kept bidding all the time on new projects, but we had to cut our profit margin to the bone," John Mc-Arthur said.

While many of their peers in construction were forced out of business, the McArthurs were fortunate to weather the Great Recession better than most. But not without cost: Their dream of selling their business and retiring has been put off. Indefinitely.

"When you put every penny you have into building a business whose value then disappears, living on a beach doesn't seem as important anymore," Patsy McArthur explained. "That's the tragedy of what's happened in small-business America. So many business owners don't have dreams--about retirement or otherwise--anymore."

It's not news that the collapse of the stock and real-estate markets starting in 2008 played havoc with the financial wherewithal of most Americans. Not that Americans have typically been all that good at saving anyway. According to a 2010 study by Boston College's Center for Retirement Research, the shortfall between what 32-to-64-year-olds need to retire and what they'll actually have when they reach the traditional retirement age of 65 amounts to some $6.6 trillion. That's an average of $90,000 per household.

Baby boomers who thought they were on the cusp of retirement have probably suffered the worst. A survey conducted recently by AARP of people age 50 and older found that a third of them planned to delay their retirement and another 44 percent expected to work at least part-time past age 65.

"Certainly my views on retirement have changed, especially since the economic downturn," said Linda Rink, 60, a self-employed market-research analyst in Philadelphia. "I will not receive large pensions from former employers, and my expectations from Social Security are not large either, given my erratic pay history. So retirement seems like a joke these days. In fact, I joke to my fellow baby-boomer friends that I expect to be working 'in my walker.' "

Yet, the prospect of landing a job in late middle age can be daunting, especially in a tight labor market. A popular solution: turning to entrepreneurship as a way to pay the bills. Americans ages 55 to 64 started some 10,000 businesses a month in 2007-08, more than any other age group, according to the entrepreneurship-focused Ewing Marion Kauffman Foundation, based in Kansas City, Mo. Altogether, an estimated 9 million of the nation's 15 million small-business owners were born before 1965. But even they aren't necessarily any closer to retiring. A perfect storm of sorts--a lack of credit, a depressed economy, and a glut of small businesses up for sale--has made it harder than ever for aging entrepreneurs to sell their companies to finance their post-employment years.

"I can tell you that, from my perspective, business owners who may have hoped to be out from under the grind--and risk--associated with ownership are indeed holding on to their businesses right now," said Barbara Taylor, cofounder of Synergy Business Services, a brokerage and valuation firm in Rogers, Ark. "Valuations are down, and credit markets remain tight. For many business owners, that means it's a bad time to sell, which means we may have business owners delaying retirement for quite some time."

A case in point: 60-year-old Douglas Wamsley, a self-employed accountant in Athens, Ga. For years now, he has planned to sell Wamsley Accounting when he turned 65. But, he lamented, "simply nobody, nobody, nobody is looking to buy. OK, there are some players looking to steal your business by offering 50 percent of a normal selling price. And nobody can get cash anywhere to purchase a business. And now with [a] slip in [the] overall financial market, I'm concerned if I have enough to retire anyway. So, for now, I'm revamping my plans and will probably work another 10 years at least."

Of course, even if seniors are able to sock enough away, retiring to a beach or a golf course isn't for everyone. Consider the story of Jim Smith, a former information-technology executive who spent most of his career working for big companies. After he retired six years ago at 55, he and his wife bought a house in Seattle with plenty of room for him to throw himself into his hobby of woodworking. "I thought I would have a blast making furniture for my kids and grandkids," Smith recounted. "After doing that for a few years, nobody needs anything anymore."

But the recession brought a remedy for his boredom. Smith realized that his wealth of IT knowledge could help businesses struggling through the economic downturn. So last January, he opened a consultancy, Enterprise Management Group, to help Fortune 500 companies cut their IT costs.

"If you are an entrepreneur, you'd better think long and hard about whether you really want to stop," Smith advised. "I was dumbfounded by how fast I got bored and how much I missed my work." He's a lucky man, one with options, delaying retirement by choice, not out of necessity. But delaying it.