Pre-retirees are dominating small business start-ups, both in terms of the number of businesses they are starting and the success rate of these businesses.
Each year, the Kauffman Foundation publishes its report on startup activity. The 2015 report contains lots of great news for pre-retirees ages 55 to 64. The share of all startups for this age group has grown from 14.8% in 1996 to 25.8% in 2014. Only 45 to 54 year olds are starting more businesses with a share of 26.6% in 2014. Also, older individuals are succeeding at staying in business as well. In 1996, the 55 to 64 age group was the smallest of the four groups tracked in the study. These older Americans made up only 15.8% of all active business owners.
Today we have a completely different story. Once again, this pre-retiree group has grown to the second largest of all groups tracked and comprises 28.1% of all active businesses in the U.S., second only to 45 to 54 year olds who comprise 32.3% of all active business owners.
Why is this happening? Here are three big reasons which may be just the encouragement you need to launch your second act as a small business owner. (For related reading, see: 5 Financial Strategies to Last a Lifetime.)
Across the globe, life expectancies are rapidly increasing. In the U.S., the average life expectancy for those born in 1900 was only 47.3 years (it's pretty hard to launch a business when you aren’t likely to be around to even start planning for it, right?). In fact, in 1900, there were only 3 million Americans aged 65 or older.
Compare this to more recent statistics. Babies born in 2013 in the U.S. can expect to live to an average of 78.8 years. And according the U.S. Census Bureau, in 2010, there were 40.3 million American aged 65 or older, 12 times the number in 1900. That's a lot of extra time. And while early retirement was a big trend in the 1990’s, today, it’s all about “unretirement” and figuring out what to do with all these extra years we’re now being given as a society.
Let’s face it; if you’re 55 years old, you’ve had a lot more time to accumulate wealth than the 20-somethings who may also be thinking about opening a business. I’m sure you’ve heard all the statistics about business failures in the U.S. — 30% fail in the first two years and 50% fail within the first five years of existence. Among many reasons, one of the biggest is that these fledgling companies simply run out of money. If you’re a 20-something with limited financial reserves and a student loan bill to pay every month, you simply don’t have the financial staying power compared to those ages 55 to 64. (For related reading, see: 5 Steps to Getting Started in Investing.)
The time is financially right for you to pursue an encore career as a business owner if you have one or more of the following:
- Enough money in the bank to be self-sustaining (cover all living expenses) for two or more years.
- A supportive spouse or partner who is in their peak earning years and plans to continue working.
- Significant equity in your home that can be tapped in the form of a home equity line of credit.
- A day job that can pay the bills while also offering enough flexibility for you to keep working while experimenting with your new venture. (For related reading, see: Starting a Small Business: Financing Your Business.)
I’m in my middle 40s. I can tell that I don’t learn new computer programs as quickly (or at all if I can get my kids to do it), and I don’t soak up facts and figures the way I used to in my 20s. Formal research validates what I’m experiencing and what you may be experiencing if you’re in your 40s, 50s or 60s. Many studies show that fluid intelligence — the ability to analyze, process and retain new information — peaks at about age 20.
However, I also know I’m a much better decision maker than I was in my 20s. I find myself able to quickly sort through dozens or even hundreds of potential courses of action in my business and personal life and distill it down to those few tasks that will allow me to make the biggest impact in the shortest amount of time with the least amount of effort. Again, formal research bears this out because crystallized intelligence — the intelligence associated with experience and knowledge that helps improve decision making — increases well into adulthood.
In fact, in a now famous study by the Brookings Institution published in 2009, researchers concluded that the age associated with the best decision-making on financially related matters is age 53. David Laibson, one of the study’s four authors, calls the 43 to 63 age bracket your “cognitive sweet spot” for people in terms of decision-making. If there’s one thing starting up a new business requires, it’s the ability to choose among many different courses of action and make good decisions. Isn’t it good to know you’re at the height of this decision-making ability?
If you’re in your 40s, 50s or even your 60s and worry that your time has passed and it’s too late to go into business for yourself, remember the famous quote from Ben Franklin: “Early to bed and early to rise makes a man healthy, wealthy and wise.” Back when he was alive, it may have been too late for you to launch a company, but it’s definitely not today. You are healthy enough, and wealthier and wiser than your younger counterparts. Make a list today of your three best ideas for a small business start-up and pick one simple action to take that gets you started. (For further reading, see: Top 8 States for Starting a Business in Retirement.)