This story reflects the views of this author, but not necessarily the editorial position of Fast Company.
Many Americans see entrepreneurs as the saviors of our day–the engines of economic growth and innovation in our communities, workplaces, and daily lives. We love reading stories about self-made founders, college dropouts who began their ventures out of garages, and rags-to-riches success stories. We’ve glorified entrepreneurship, and our policymakers often tout business owners as the heroes of our country.
I am not here to argue that entrepreneurship is inherently bad. New businesses do contribute to economic growth, and in turn, job creation. But today’s capital-raising culture has made starting a business look easy, even for those without a safety net to fall back on. This is a problem, especially for entrepreneurs who choose to jump into the game when they are 50 years old or older.
The unglamorous reality of starting a business
Entrepreneurship is a precarious line of work: Only about half of all firms survive their 5th birthdays. Assuming they do stay in business, entrepreneurs often lack health insurance, according to the Treasury Department. They are at risk of poverty in retirement, with only 8% contributing to a retirement plan in a single year. This foretells a dire future for many Americans, considering that only one in five workers aged 50 and older, including their spouses, have saved less than $1,000 for retirement. That number gets lower the younger you are.
Those who have higher levels of assets, spouses who have steady jobs, or families with a modicum of wealth are in a better place to start a business. If their ventures fail, they have something to fall back on. But what about the majority of Americans without ample emergency or retirement savings and who need access to employer-sponsored health insurance to reduce its cost?
Entrepreneurship is especially risky for older workers
Here’s what we do know. Entrepreneurship–a fancy-sounding word often interchanged with self-employment–is less likely to provide critical benefits that are tied to a traditional workplace. This is concerning for people of all ages, but it is of particular concern for the one in five workers aged 50 and older who are self-employed and nearing the typical retirement age. These individuals, most of whom are too young to qualify for Medicare–our country’s universal health care program for those 65 and older–are far less likely to receive health insurance and pension benefits.
For retirees who move back into the labor force through entrepreneurship, their non-pension wealth often declines. And counter to the prevailing belief, entrepreneurs earn less, on average, than their counterparts who work for someone else. With less time to make up for losses, the risks associated with entrepreneurship inherently increase with age.
Of course, entrepreneurs start businesses for other reasons. They want to be their own boss, and they see it as the best way to give back to future generations. Then there are also those who are forced into entrepreneurship by unemployment or age discrimination.
The importance of safety net programs
Our safety net system ties significant benefits that promote longer, healthier, and happier lives–health insurance and retirement savings–to the workplace. The irony is that the entrepreneurs we love to herald as the epitome of the American dream are often the ones whose later lives we put most at risk.
But we must speak honestly about the costs and benefits of this work, especially for those approaching retirement age. We need to make it easier for people of all ages to access key safety net programs, such as affordable health insurance, “food stamps,” and unemployment insurance, while at the same time asking ourselves why key programs that are so directly linked to our physical and financial well-being so often require a good job (and not just any job) to receive them.
There have been attempts to solve this. Senator Mark Warner (D-VA) has introduced legislation creating a pilot program that would fund portable benefits–something that entrepreneurs could tap into. Washington also introduced a similar bill in 2017 (and reintroduced it in 2018). Unfortunately, we haven’t seen much progress on both.
Many of these workplace-related benefits are too expensive for a single person to afford alone–especially older entrepreneurs–but as a part of a group, they may become more accessible.
In the absence of these protections, what should potential entrepreneurs do? Know that entrepreneurship can be a high-risk, high-reward game. Do your homework. And if you’re older and approaching retirement, be especially vigilant about assessing these risks. If anything were to happen, it’s essential to have a safety net to fall back on. Currently, our country isn’t providing one.
Cal J. Halvorsen, PhD, MSW, is an assistant professor at the Boston College School of Social Work and a 2018 Encore Public Voices Fellow.