For many, the view of a successful entrepreneur is a young millennial toiling away at a tech startup in Silicon Valley. But increasingly, starting a business may become the province of older workers. From increased productivity to more secure retirements, late-in-life entrepreneurship could be a real boost to older workers.
There are a host of reasons why starting a business makes more sense later in life. First, perhaps surprisingly, older entrepreneurs tend to be more successful.
{mosads}A new working paper by Pierre Azoulay and co-authors found that a 50-year-old start-up founder is 1.8 times more likely to achieve marked success than a comparable entrepreneur two decades younger. Even founders in their 60s had substantially higher rates of success than their younger counterparts.
Much of this may be driven by the critical role of experience. The same study generally rejects the notion that the imagination of youth trumps gains from real-world know-how. Indeed, startups that are founded by entrepreneurs with relevant experience are 125 percent more likely to find high-level success than those without.
Starting a small business may also be an increasingly appealing way to transition to retirement. With rising life expectancies and widespread retirement inadequacy, longer working appears to be an inevitable reality for many late-career workers.
But long hours and lack of autonomy may not be for everyone, which is perhaps why we see workers transition to self-employment late in life.
A recent study by Shanthi Ramnath, John B. Shoven, and Sita N. Slavov found that over a four-year period, around 4 percent of older workers went into business for themselves, often with reduced hours.
From a tax perspective, it also makes increasing sense to start a small business — especially if you pay a fair amount in income taxes, as many older workers do. Last year’s tax cut provides a 20-percent write-off for many owners of passthrough entities — businesses like sole proprietorships and partnerships — relative to wage earners.
If you were on the fence between staying with an employer and going into business for yourself, the tax cut might be the push you need.
Automation may accelerate this trend, too. The Organization for Economic Cooperation and Development (OECD) recently published a paper predicting that greater automation in the workplace would disproportionately displace young and old workers.
While younger workers can more easily retrain, late-in-life up-skilling might not be attractive to near-retirees. Starting a company may just be the anecdote for someone who lost their job to a robot.
All told, later-in-life entrepreneurship shows a lot of promise and may become a shared experience among older workers.
Americans are going to be spending more and more years in the workplace — the share of elderly people in the labor force is expected to nearly double between 1996 and 2026 — but starting a small business might be productive and rewarding strategy for those still working.
If you’re plugging away in your late 60s and 70s, starting your own company can mean that at least you’re doing it on your own terms.
Benjamin H. Harris is a visiting associate professor at the Kellogg School of Management at Northwestern University and was the chief economist to Vice President Joe Biden.