The tip of the baby boom iceberg has just started melting into retirement. As tends to be the case with this generation, they are not content to do retirement the old-fashioned way. Boomers are healthier and more active than retirees of the past, and they have a lot more in mind than just sitting on their front porches in rocking chairs.
A Merrill Lynch retirement survey conducted in 2005 revealed that baby boomers were picturing a different kind of retirement for themselves. Most boomers expected to continue some sort of work during retirement, either cycling between periods of leisure and work, working part time, or starting a business of their own.
That’s exactly what seems to have transpired. According to the AARP Public Policy Institute, the June unemployment rate of 6.9 percent for those over 55 is lower than the 9.5 percent rate for the overall labor force. And it doesn’t stop there. Over the past several years the highest rate of growth in entrepreneurial activity occurred in the 55 to 64 year old group, according to a 2009 Kauffman Foundation study. The Challenger Job Market Index released earlier this year shows this trend continuing, affirming that the biggest gains in self-employment occurred in the over-54 set. Here are five great reasons to join the ranks of self-employed retirees.
Delay tapping into your retirement assets. The stock market has damaged retirement nest eggs over the last few years. Generating another source of income will allow you to put off taking withdrawals from your retirement accounts. While you can start taking distributions as early as 59 ½ without penalty, waiting until distributions are required at age 70 ½ gives those funds a chance to continue growing tax-free for another decade.
Grow retirement accounts by continuing to make contributions. Self-employed individuals are able to make significant contributions to their retirement accounts. By setting up a solo 401(k), you can contribute the first $16,500 of your 2010 earnings ($22,000 if you are at least 50) right off the top. After that you can also contribute 20 percent of your net self-employment income up to a total of $49,000 ($54,500 if 50 or older). Depending on your income, you may also be able to fund a traditional or Roth IRA.
Get Uncle Sam to help with health insurance costs. For those who retire before becoming eligible for Medicare, the cost of health insurance premiums is a significant concern. If you earn a profit from self-employment, you will be able to deduct some or all of the cost of health insurance premiums for you, yourself, and your dependents.
Increase your Social Security benefits. If you delay collecting Social Security benefits until you are 70, you will collect a higher monthly benefit than if you start at the earliest possible age. If you continue earning money from your own business, you will also increase your lifetime earnings, possibly adding to the amount you will eventually collect. For healthy boomers with long life expectancies, this will result in a higher lifetime benefit.
You’ll feed not just your bank account but also your brain. While 37 percent of the boomers included in the Merrill Lynch survey considered earnings a compelling reason to keep working, 67 percent of them wanted to keep working for the continued mental stimulation and challenge. Other studies have shown that retirees who continue to work even part of the time enjoy better health. By starting a business in retirement you’ll continue to enjoy the healthy, active lifestyle that most boomers are expecting in their golden years.
Sydney Lagier is a former certified public accountant. Since retiring in 2008 at the age of 44, she has been writing about the transition from productive member of society to gal of leisure at her blog, Retirement: A Full-Time Job.