Need to Work in Retirement? Think Small

More retirees than ever intend to keep working past traditional retirement age. But age discrimination and job burnout pose major challenges to staying in the corporate workforce.

Entrepreneurship can be a viable alternative work route for retirees--and it's getting more commonplace. Entrepreneurs age 55-65 accounted for 26% of all startups last year, up from 15% in 1996, according to the Kauffman Index of Entrepreneurial Activity.

While an entrepreneurial startup may sound like a risky investment of capital, it doesn't have to be. A "micro-enterprise" can help retirees generate supplemental income without putting much capital at risk--perhaps enough to forestall filing for Social Security or ease the pressure for drawdowns from retirement portfolios.

"Whenever I mention entrepreneurship as an option for working longer, people think it means draining your 401(k), spending capital, and taking an enormous risk," says Chris Farrell, author of Unretirement (Bloomsbury Press). "But micro-enterprises allow you to work from home, take advantage of technology, not touching your retirement savings and using just a little money to experiment."

Farrell, senior economics contributor at American Public Radio's Marketplace and a contributing editor at Bloomberg Businessweek, adds that if you think you have a service to sell, a micro-enterprise approach allows you to test it out. "Find out if there really is a market--if there is, then you can commit more resources and perhaps round up more money," he says.

One way to do that: test out your idea while still working.

Kimberly Palmer is nowhere near retirement--at age 35, she works full time as a senior editor for personal finance coverage at U.S. News & World Report. But in 2009, she started writing and publishing in her spare hours Palmer's Planners, a series of personal financial planners that she sells on Etsy.com, the e-commerce website for handmade items. The business only generated $200 monthly at its peak, but it helped stimulate other freelance work and speaking events that brought her side income to about $10,000 annually. Side-gigging worked so well for Palmer that she wrote a book about it--The Economy of You: Discover Your Inner Entrepreneur and Recession-Proof Your Life (AMACOM, 2014).

Micro-enterprises often leverage the entrepreneur's accumulated experience and knowledge, as Palmer has done via Etsy. Another platform offering that kind of opportunity is Guru.com, which helps businesses connect with freelance workers; although the site started with a focus on information technology, it has expanded to cover more than 160 fields of expertise. Other examples include Elance and Fiverr.

"These marketplaces are valuing older workers in a way corporate America doesn't," says Jeff Williams, CEO of Bizstarters, a company that provides coaching and training to older entrepreneurs. "The customers don't care how old you are so long as you can deliver the solution. In the corporate world, it's still about your resume, how you look, or how much they will have to pay you."

The best time to start a micro-enterprise? While you're still working. "If you get started before you retire or need the money, and can develop something that generates a couple thousand dollars a month, it can make an enormous difference once you do retire," says Judith Rosenberg, founder of The SAGE Centers, a business incubator and resource center in Berkeley, California, for over-50 entrepreneurs. Most of the micro-enterprises Rosenberg sees are run by part-time entrepreneurs who put in around 10 hours a week.

Williams says his clients often start up businesses for well under $5,000 and incur monthly overhead expenses of less than $500. The most successful ventures he's witnessed share three common traits: deep knowledge about a specific topic, the ability to consult or share knowledge about the topic, and the ability to sell their services online.

A good example: Nancy Kessler, a museum curator with a lifelong interest in oral history and folklore. Kessler's micro-enterprise is Memoirs Plus, which specializes in writing memoirs for seniors. Palmer's book includes a list of the 50 best side-gig opportunities, ranging from website design to marketing consulting, copywriting, and tutors.

Some older entrepreneurs are even tapping into new shared-economy platforms such as Airbnb and Uber. Nearly 25% of Uber's drivers are over age 50, according to a study commissioned by the company recently. Farrell says he hears often from older entrepreneurs who have become de facto B&B operators via Airbnb. "I had thought it would be more of a young person's game, but it makes sense--if you're comfortable with it from a security standpoint and you have kids who are out of the house or you're widowed, it's a fairly easy way to make some money."

The two major challenges for newbie micro-entrepreneurs, Farrell says, are selling yourself and getting paid. "If you've always worked in the corporate world, it's getting used to presenting yourself as having a product or service that can solve your problem--and the other is asking for money, because they've never had to do it before."

Rosenberg sees similar transitional problems. "I see a lot of people who are retired, or about to retire, who have good skills and think they'll do consulting work but know nothing about how to run a business--or people who may have a business but don't know how to grow it to the next level," she says.

Rosenberg has published an e-book, Financial Security After 50: Residual Income Solutions, which explores other micro-enterprise niches, such as freelance writing, franchises, and affiliate marketing programs.

One downside to micro-enterprise is that it rarely provides a route to building up equity in a business that can be sold when it's finally time to fully retire. Farrell cautions that that's the wrong way to think about it. "What a micro-enterprise allows you to do is buy a lifestyle--it's not about creating a business with a five-year exit strategy."

Put another way: The exit is the exit.

Mark Miller is a retirement columnist and author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work, and Living. The views expressed in this article do not necessarily reflect the views of Morningstar.com.