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Freedom First Credit Union

Entrepreneurship: The New Retirement

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Will You Join the New Wave of Silver-Age Business Owners?

Q: My husband has been unemployed for more than a year.

Since we’re close to retirement age (he’s 62, and I’m 59), we’re considering a small venture instead of a full-time job. However, because we’ve been employees all our working lives, the thought of starting a business is both exciting and nerve wracking. Where do we start?

A: America’s idea of retirement has changed significantly over the last several years.

The days of lying on the beach while sipping tropical drinks are long gone. A Motley Fool survey indicates nearly half of Americans think of their retirement as including a continuation of work.

Some people need to keep working after retirement. Other people may just not be ready to kick back and relax. They may legitimately enjoy what they do, but want to do it on a more limited basis. Whatever the reason, new retirees are increasingly making the transition from working for someone else to working for themselves.

Just how common is this new wave of silver-age business owners? According to the Ewing Marion Kauffman Foundation, 23.4% of new small business owners are between the ages of 55 and 64. The AARP estimates nearly 40 million people over the age of 50 are strongly considering entrepreneurship. As much as they have job skills and vital experience, they may lack the business savvy to turn those skills into successful ventures.

These entrepreneurs need advice, and they need to get it from someone they can trust. If you or a loved one are considering one of these “encore” careers, you likely have a lot of concerns and may not know where to turn. As a member of Freedom First, though, you’ve got someone to help solve these problems. Freedom First can help answering questions like:

1) How do I separate my business funds from my personal funds?

This is a great idea for a variety of reasons. When it comes time to pay taxes, having a detailed record of your business costs can save you a bundle. Keeping a clear account of who’s paid you and who hasn’t can also be important for budding entrepreneurs. Everything about business accounting is simplified by a separate business checking account.

Fortunately, a checking account from Freedom First can make a new business owner’s life easier. A single account for billing makes it easier for entrepreneurs to get paid. These accounts are also a vital part of establishing an independent business identity for tax purposes. Every business has to exist in two ways: as a service provider and as a financial entity. A business checking account from Freedom First can provide a solution for this second set of problems.

2) Where do I go to get funding?

Starting a business costs money. Whether you need product development, market research or advertising, you’ve got to spend money to make money. For young entrepreneurs with time to recover from loss, this initial investment is far easier to find. For retirees, though, taking on new debt can put their retirement in jeopardy. Using your retirement nest egg to fund the start-up costs might be too risky.

Taking a big chunk of money out of your retirement fund at once is dangerous. In addition to the possibility that you might lose it all and be forced to significantly change your retirement plans, there’s the lost interest from moving that investment. For some accounts, like 401(k)s and IRAs, withdrawal limits may make taking the start-up funds out prohibitively expensive.

You need ways to manage that risk. Finding a way to balance the costs from your business with your need for retirement security is a tricky proposition. Keeping costs low is a good place to start, but small business loans are another excellent way to get that initial investment. In addition to that, taking them out under your business is another good way to insulate family and heirs from that risk. Smaller operational costs can be covered with a business credit card.

3) What do I do about taxes?

This is something most small business owners never consider until it’s too late. When you work for someone else, you get your federal income taxes withheld automatically. You may need to make a small catch-up payment in April to account for stock ownership, a spouse’s income or other sources of income, but they never break the bank. When you work for yourself, though, no one takes care of those payments throughout the year for you.

Estimate What You May Owe in Income Tax

This makes your paychecks seem much bigger because you’re not having income taxes or payroll taxes deducted. Your small business may seem to be making money hand over fist. You may use that money to reinvest in your business or pay your personal expenses. Then April comes and the IRS sends you a bill for about 30% of your gross income on the year. If you’d gotten good planning advice and made estimated quarterly payments, you won’t feel quite so much pain. Still, the first time one of those payments comes around, life can be pretty unpleasant.

This is where Freedom First can act like your own HR department. You can set up a savings account or club account to automatically deduct weekly payments from your business checking. This “secret” savings account will cover the bill when taxes come, and, in the meantime, you can even earn dividends on the money you sock away.

Starting a small business can be scary and disorienting. It takes a lot of knowledge, skill and hard work. While only you can provide the drive and ambition that’s necessary to succeed in a small business, Freedom First can help with the money knowledge to help control many risk factors. Speak to a representative about planning your entrepreneurial adventure today.

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