The Boomer Boom

The nation is on the brink of an explosion of new business start-ups, which may eclipse the dot.com boom of the late 1990s. This time around, however, the burst in entrepreneurial activity will not be led by 20-somethings, but by baby boomers and would-be retirees in their 40s, 50s, 60s and even 70s, who are better educated, healthier and more tech-savvy than their predecessors.

The boomer-led surge in start-ups could have a profound impact on the economy, both from new job creation and decreased tax burden, as this large, aging population is supported by entrepreneurial income instead of government assistance.

Data from the Bureau of Labor Statistics show that the number of Americans 55 to 64 categorized as self-employed in nonagricultural industries has increased 29 percent since July 2000. The number of self-employed seniors (65 and older) has grown 18 percent.

Meanwhile, the largest number of self-employed workers is represented by late boomers – those 45 to 54 years-old – who make up nearly 2.6 million of the nation’s 9.6 million self-employed.

All told, the boomer-and-older entrepreneurs now account for 54 percent of self-employed workers, up from 48.5 percent in 2000.

While self-employment is expanding among older workers, it has been stagnant or falling for almost every other age group. The biggest group of self-employed workers in 2000 was 35- to 44-year-olds, which numbered 2.79 million. Their numbers have since fallen 15 percent. Self-employment has risen by only one percent among 25- to 34-year-olds.

From Employer to Customer

It may be a foregone conclusion that many baby boomers, either out of desire or necessity, will work beyond the retirement age of 65. What some employers may not have expected is that a growing number of these baby boomers are abandoning traditional jobs for self-employment.

This could have negative consequences for employers, some of whom are already starting to experience a shortage of skilled workers.

As a result of the shortage, the new wave of senior entrepreneurs may find that their biggest customers are their former employers, who have no choice but to outsource certain functions to those with the most relevant experience.

So why the surge in boomer start-ups?

Boomers are better educated than previous generations who entered their retirement years. As a result, they are more ready, willing and able to take on the intellectual challenges of continued employment. Thirty percent of the leading-edge boomers, aged 55 to 59, have a bachelor’s degree or higher. That is up from 25 percent just six years ago, according to Census Bureau statistics.

Overall, our society is becoming more educated. Census data show that in 2004, 85.2 percent of Americans 25 and older completed four years of high school or more. In 1974, the high school completion rate was just 61.2 percent. Furthermore, 27.7 percent of the 25-plus population has gone on to complete four years of college or more, up from 13.3 percent in 1974.

Aging boomers as well as those who are now in their 60s and 70s have also shown a propensity to continue their education. The latest statistics from the Department of Education show that the number of Americans between the ages of 45 and 69 enrolled in adult education classes increased 23 percent from 1995 to 1999.

With the oldest boomers scheduled to reach the early retirement age of 62 in 2008, many are saying that they plan to stay in the workforce. As a result, we will continue to see adult education enrollment grow as these aging workers and entrepreneurs attempt to keep up with changing developments in technology, business management and other areas.

Pensions Falling Short

While some boomers start their own business out of the desire to continue working, others will do it out of necessity. For many, imploding pension plans and a volatile stock market have diminished retirement savings. To make matters worse, many aging workers suddenly found themselves out of work due to corporate downsizing.

With a weakened safety net, more of these older downsizing victims are opting for self-employment in order to have more control over their job security and financial destiny.

Younger boomers have a lot of catching up to do when it comes to retirement savings. A recent U.S. News & World Report story cited statistics showing that 55 percent of 45- to 54-year-olds have less than $50,000 saved toward retirement. Ninety percent have less than $250,000, a nest egg that will only provide about $10,000 annually for those hoping to stretch it out for 30 years.

In addition to a lack of retirement assets, the surge in boomer start-ups may be due to several other factors, including the enduring perception that age discrimination persists. Older workers also desire a high level of workplace flexibility that they feel can only be achieved by acting as their own boss.

Ironically, many companies will be forced to contract work out to these older, independent consultants and freelance workers due to the approaching mass retirement of aging baby boomers, which is expected to leave an enormous void of experienced workers at companies in nearly every industry throughout the United States.

It will be a win-win situation for companies and older contract workers. The companies will benefit from the experience that these experienced free agents bring – paying them a fee rather than a monthly salary, which will also save money on benefits.

The boomer entrepreneur will have an ongoing flow of work and income, which will be critical for many of these individuals, since the economic slump and subsequent stock market losses inflicted significant damage to their retirement savings.

Are You Ready to Run a Start-Up?

Entrepreneurship will be the road to continued earnings for some, but starting a business is not for everybody. So, what makes a good entrepreneur?

Sales Experience. As an entrepreneur, you should expect to spend 75 percent or more of your time on sales as the business is getting off the ground. If you do not feel comfortable selling, your business is probably doomed before it even begins.

Financial Resources. Many entrepreneurs are forced to fund part or all of their business with their own savings and/or credit cards. The return on this investment probably will not come immediately, so it is critical to be financially able to get through the lean times of little or no steady income. Many entrepreneurs are forced to fund part or all of their business with their own savings and/or credit cards. The return on this investment probably will not come immediately, so it is critical to be financially able to get through the lean times of little or no steady income.

A Business Plan. Consult with a CPA or an organization such as SCORE to help develop a business plan. Many entrepreneurs have great concepts that fail due to poor execution.Consult with a CPA or an organization such as SCORE to help develop a business plan. Many entrepreneurs have great concepts that fail due to poor execution.

Stamina. Starting a new business takes stamina – the energy to withstand the physical rigors and long hours of starting up and operating a business on your own.

Commitment. Starting a business takes a substantial commitment of time and personal effort. It is a time-and-a-half job, not a part-time position. Your business must come first, so you will have less time for family and personal activities – and less money, too. Before you decide to go out on your own, make sure you are willing to make such sacrifices and remain dedicated to your business goals no matter what.

A Solid Track Record. A common mistake among would-be entrepreneurs is venturing into a new field in which they have no previous experience. Just as we counsel people not to change careers when they seek new employment, we counsel people who want to start businesses to stay with what they know. Trying something different – including the purchase of a franchise about which you know nothing – only increases your chances of failure, because you will be competing with others who have more experience.