Can I Use My Retirement to Start a Business?
Your retirement plan is supposed to support you when you are no longer working. But, what if you don't want to stop working? Your retirement savings can be used to keep you employed. If you want to start your own business, consider using your retirement savings. Make sure you understand the risks and rewards of this move before you plunge in.
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Significance
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Starting a business with your retirement savings requires that you merely make withdrawals significant enough for this purpose. You don't have to make a special request to use your retirement funds. If you are under age 59 1/2, you will have to borrow money from your retirement plan if this is allowed by your plan. There may be restrictions on this activity, however. For example, 401k plans only allow a maximum loan of one-half of your savings up to $50,000.
Benefit
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You may not have enough money to live on when you retire. In this case, a benefit of starting a business with your retirement savings is a business may generate more money than what your savings ever could. This will allow you to keep working and making money. Or, you could hire people to work for you while you collect income generated by the business. In this way, you could be semi-retired and drawing an income that you otherwise would not be able to make from your savings alone.
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Disadvantage
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The risk inherent in starting a business with your retirement savings is that you lose your savings. There is no guarantee you'll succeed. You'll also need to be committed to working long hours and making many decisions about the operation of the business when you first start. While you may hire employees to handle the bulk of the work after it's started, you will need to be the visionary of the business and this requires serious dedication. If you're not ready for this, you could lose everything you've invested and be left with nothing.
Consideration
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Only start a business if you have a plan and you are committed to stick with it. You should understand your business and how it operates. While running a business may sound appealing, and while you might be able to semi-retire, there is no guarantee that you can actually do this. You should consider having a backup plan, or perhaps taking out a loan instead of using your retirement savings. This way, you can service the debt with your savings instead of spending all of it on the business. If the business fails, you might have to file bankruptcy, but you may be able to keep some or all of your savings. If you use your savings to start a business and it fails, you'll have nothing.
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