To start your own business you need time to think, plan and struggle as things get off the ground. Retirement can therefore be fertile ground for would-be entrepreneurs. Indeed, the over-50s are becoming self-employed at a faster rate than any other age group in the UK. And the businesses they establish tend to perform better than those formed by younger entrepreneurs too, with 70% lasting longer than five years, compared with just 28% for younger age groups*.
The other thing that can obviously help in the initial stages of setting up a business – and that is essential to some plans – is start-up capital. If you have enough money in place to cope with leaner months while you build up your customer base, you’ll give yourself a much better chance of moving eventually into profit.
Most people with a defined contribution pension can take a tax-free cash lump sum when they retire, worth up to 25% of their pot. The new pension rules will also give you complete freedom over how you use the rest, including the option to withdraw up to 100% of your pot if you wish. However, it’s very important to make sure that you don’t risk more than you can afford, and that your essential outgoings will be covered for the whole of your retirement – which could last 30 years or more.
If things go well, of course, then you’ll be able to earn an income from your business that will support your retirement lifestyle. Indeed, you may be able to take advantage of the new rules on pension flexibility to smooth out the bumps in your overall income. However, you may need to keep a close eye on your income levels to avoid moving unexpectedly into a higher tax-band.
More importantly, if your business fails to perform as expected, or fails altogether (which many do), you will want to have a contingency plan in place so that your everyday expenses are covered. For this reason, you may wish to secure a guaranteed income with some of your pot, while taking the rest on a flexible basis.
If you have a financial adviser, they can help you build and manage a retirement strategy that fulfils your entrepreneurial impulses while making sure you don’t make any big mistakes or pay more tax than necessary. If you don’t yet have a financial adviser but are interested in finding one, you can do so using the free search tool here.
* Source: Age UK