29 April 2008

When Starting a Business at Age 75, One’s Exit Strategy Matters

Seven in 10 American workers plan to work after reaching retirement age

Pearl Rank at work behind the bakery counter in Chatham, Illinois (Courtesy Pearl Rank)

By Burton Bollag
Special Correspondent

Washington -- When her husband died eight years ago, Pearl Rank, then in her mid-70s, left her sales job at a women's clothing store in Mississippi to return to her native Illinois. But she soon got bored.

"I'm not the kind of person to sit home and play cards," she said.  She started a bakery at the Apple Barn, a country market selling local farm produce that her daughter owns in the small Illinois town of Chatham. The bakery has become an area favorite for its fresh bread and fruit pies and now employs five people during its busy season. Rank said she knew almost nothing about baking before starting, but taught herself because she wanted something constructive to do with her time.

Now 83, Rank is part of a growing number of retired people in the United States who start small businesses.

Experts say the trend is due to a combination of factors. For one thing, people are living longer. Americans 65 and older currently make up 12 percent of the population. The U.S. Census Bureau projects they will account for 21 percent in 2050.

Those retiring now are better educated and are living longer, healthier lives than those in previous generations. Today’s retirees are in a better position to turn an idea into a business.

Economic and technological developments are helping them too. Computers and the Internet have substantially lowered the costs of starting a business. "In the past, you needed to rent an office and hire a secretary," said Edward G. Rogoff, a professor of management at Baruch College, in New York. "Now all you need is a telephone and a computer in your home, and you're off and running."

In addition, economists say, there is a recent trend in corporations to outsource services they used to do themselves. Some retirees work as self-employed contractors, selling their former employers such services as delivery, computer support, training or printing.

Economists agree that older workers are more likely than younger ones to be their own bosses. In a 2005 analysis of people age 50 and over who were active in the work force, Boston College's Center on Aging & Work found that 17 percent were self-employed (versus 12 percent of younger workers), and 9 percent owned a small business (versus 5 percent of younger workers).

Experts say that it appears that the number of retired people starting businesses is growing.  Retirees have certain advantages over younger entrepreneurs. "Older people who start a business leverage expertise and networks," said Rogoff.  If they stay in the same sector where they were employed, they have years of knowledge and have built up relationships with many people they can turn to, such as customers, suppliers, experts and bankers.

Older entrepreneurs often have more access to money to invest in a new business than do younger entrepreneurs, said Robert McKinley, who runs a program at the University of Texas, San Antonio, to help local small businesses. "They usually have savings or at least credit" when they seek a bank loan.

But there is one thing that older entrepreneurs lack: time. For that reason, experts often advise retirees to avoid risky ventures. "If you're 26 and you have a terrible failure, you have lots of time to recover," said Rogoff. "If you're 66, you don't."

The AARP, formerly called the American Association of Retired Persons, a nonprofit group, warns retirees not to risk their savings lightly. "AARP has a real concern over retired people using their savings to start a new business," said Deborah Russell, the group's director of work force issues. She says retirees thinking of starting a business should devise a careful business plan "that includes when to call it quits."

Changes in American society favor this surge in late-life entrepreneurship. Families are smaller and often less able or willing to have aging parents live with them. At the same time, advances in medical care such as artificial hips allow older people to lead independent lives far longer than they did in the past.

"We used to know what retirement meant," said Marcie Pitt-Catsouphes, co-director of the Center on Aging & Work. "It meant withdrawing from the labor market." But, she said, surveys show that nearly seven in 10 workers now expect to continue to work full time or part time following retirement from their main jobs, typically around the age of 65.

With the prospect of 20 or 25 active years ahead of them, retirees now often look to some form of work -- a new job, starting a business or volunteering -- to keep them physically and mentally healthy and to give them a sense of purpose in life.

Money concerns also are pushing retirees back to work, Rogoff said, especially as "the number of people covered by pensions is shrinking."

For Rank, the benefits of running her own business are clear. She still suffers from a painful back injury two years ago. "I could stay home and feel sorry for myself," she said. Instead, she is at her bakery every day from 6:30 a.m. to 3:30 p.m. "It takes my mind off myself," she says.