How to Make Money in Retirement: A Guide to Turning a Hobby Into a Side Business

How to make money in retirement

Retiring from your career doesn’t mean the end of your earning potential. In fact, it can be time to pursue a money-making passion. 

If you have worked most of your adult life, you’ve likely built significant business skills and career-related knowledge. You probably also pursued various hobbies that brought you enormous satisfaction. Additionally, your valuable life experiences have likely helped you develop impressive soft skills, including critical thinking skills and excellent verbal and written communication, collaboration, and leadership abilities. 

These factors can come together in retirement to form promising money-making opportunities. Applying your vast experience, knowledge and skills to a hobby you enjoy can help you create a thriving side business that brings even greater fulfillment to your retirement years. 

What are the benefits of turning your hobby into a side business?

Retirees may face more challenges when starting a business that they didn’t encounter as younger entrepreneurs, such as a tighter monthly budget. Still, there are distinct benefits to turning your hobby into a side business in retirement, including the following: 

1. Turning a hobby into a side business requires a low upfront investment.

Entrepreneurs of all ages can face challenges in securing investment capital. However, if you’re a retiree who wants to start a business based on your hobby, you likely have all the equipment and training you need. Your hobby-based side hustle will have low upfront costs, and you can use the resources, materials and knowledge you already have.

2. Turning a hobby into a side business means you can start small. 

There’s no pressure to create a corporate dynamo when starting a hobby-based business in retirement. Depending on the hobby you’re focusing on, there’s a good chance you won’t have to invest substantially in materials, equipment or storage space. Even if you manufacture products, you can scale your operation so that your manufacturing capacity doesn’t exceed your ability to store excess inventory. It’s easy to start small with hobby-based businesses – and you can control your growth.

3. Turning a hobby into a side business means you can work from home.

Whether you’ve chosen early retirement or are retiring on schedule, you likely no longer want to travel to an office and deal with the headaches of a commute. When you start a side hustle in retirement, working at home is a no-brainer. Your home-based company will have low overhead costs – no office space lease, extra utilities or parking costs.

4. Turning a hobby into a side business creates flexibility.

When you start a hobby-based business in retirement, you have enormous flexibility. Your schedule is your own. For example, you can set up an online store to market and sell your goods and services and focus on perfecting your offerings. There’s no need to abide by a 9-to-5 schedule or set up rigid parameters.

How do you choose a hobby to turn into a business?

Sometimes, you’ll have a hobby that’s an obvious fit to build a business around. For example, say you’ve always been a proficient sewer and clothing designer. In this case, you may want to start a clothing store. But sometimes, matching a hobby to a business idea isn’t as obvious. Here are some tips for choosing a hobby to turn into a business:

• Consider activities you love that bring you joy. For example, maybe you enjoy researching your family history, looking at photographs and learning about lost relatives. You could turn this genealogy hobby into a side business to help people uncover their family trees, or you could help others write their ancestors’ life stories.
• Take a careful inventory of your hobbies. Don’t overlook something if it doesn’t fit the traditional definition of a hobby. Think outside the hobby box. A hobby is anything you enjoy doing. Find that skill or talent, match it with something marketable, and you’ve got a great start for a small business.
• Consider something you’re really good at. For example, perhaps you love problem-solving and are obsessed with crossword puzzles or brainstorming new product ideas. While problem-solving isn’t a traditional hobby, it’s a crucial skill for building a profitable business.

Here’s an example of someone who turned problem-solving skills into a successful business. Linda Nagamine worked as an airline customer service representative for 28 years; after retirement, she turned her problem-solving skills into a way to help people keep track of their keys. Nagamine developed the Joyful Keyper – a simple device for keeping keys secure but easily accessible inside a bag or purse.

After retiring, Linda Nagamine invented Joyful Keyper to help women find their keys faster in their purses. Source: Linda Nagamine

“There was nothing in the marketplace that effectively solved my daily problem of searching for my misplaced keys,” Nagamine explained. “It had to be something anyone could use and be reliable. I didn’t want another electronic/tech device to complicate my life.”

Nagamine’s Joyful Keypers are now sold online and in women’s boutiques.

What hobbies can make successful businesses?

Here are a few examples of hobbies you can turn into successful businesses. We’ve included ways to modify various hobbies and combine multiple hobbies or interests into workable small businesses. Be creative when brainstorming your hobby-based business idea – you make the rules when it comes to your side hustle.

Woodworking

Many retirees enjoy hands-on activities like woodworking. While this can be a relaxing pastime, it can also become a lucrative business. It’s also an easy hobby to match with other hobbies to create a unique endeavor. For example, suppose you’re into woodworking and love to play chess. In this case, you could combine these two passions to start a business that produces customized chess boards and sells them online.

Outdoor activities

Many outdoor activities can become potential income streams. For example, say you love fly fishing in your spare time and also feel a deep need to give back to your community. You could establish a rehabilitation service for wounded veterans, which is what Ed Nicholson did with Project Healing Waters Fly Fishing.

A hobby like fly fishing could be a way to help others. Source: santypan/Shutterstock

Writing

If you enjoy writing and are good at it, you have numerous options for business ideas. For example, you can start a blog:

• Write entertaining blog posts about your life experiences or travels.
• Provide younger parents with firsthand advice about raising children.
• Share your homemade recipes and specialties. 

If a blog doesn’t appeal to you, consider writing a book:

• Write a business book in which you share your corporate knowledge and experiences.
• Write your company’s history if you are an entrepreneur with lessons to share about your successful business. 
• Record your life experiences and travels in a book.
• Write a book about any subject you’re passionate about. (You can even write a book about your hobby!) 

Photography

Earning a steady income as a photographer can be challenging. However, you can create a business by putting a unique twist on your photography skills, what you photograph and how you take those images.

Here’s a great example: Mark Holtzman turned his love of aviation and photography into a successful aerial photography business. Holtzman began pursuing photography as a hobby when he was working as a sales manager for an auto dealership, flying on weekends and shooting with his film camera. 

Eventually, Holtzman’s side hustle became his full-time business and led to an award-winning photo he took that was displayed in several publications, including Vanity Fair and The Wall Street Journal.

Mark Holtzman’s photo of a flyover at the 2018 Rose Bowl appeared on ESPN. Source: Mark Holtzman

Holtzman also did something every aspiring, retired entrepreneur should consider: He recruited help from his kids. Holtzman’s son Steven joined when the side business became a full-time gig, helping his dad with various computer and technical issues.

“When we talk about if he’ll ever retire, he gives me this look that says, ‘I’m already pretty much retired,'” Steven Holtzman shared. “He loves what he does, since he gets to fly around and take pictures, and doesn’t see himself ever really retiring.”

Teaching

While teaching isn’t exactly a hobby, if you have the right communication skills, you can turn any hobby or skill into a successful business by teaching it to others. For example, if you’re an excellent golfer, consider offering golf lessons to members of your community. Similarly, you could teach people how to play a musical instrument, speak another language, knit, cook, paint – the list goes on. As a bonus, many skills can be taught online, opening up a broader customer base. 

Should your business be a full-time or part-time gig?

While you want to transform your hobby into a business, that doesn’t mean you want to give up the freedom and relaxation retirement offers. Hobbies are what we do for free, and we do them when we want to. With a hobby-turned-business, you must contend with deadlines, customers, shipping, emails, payments and more. No one wants their hobby turned into “the thing I used to love doing.”

A business requires considerable mental, emotional and physical effort. To ensure your new venture doesn’t turn into an all-consuming business, consider your current retirement life. Questions like these will help you decide whether you want to go full-time or part-time:

• How much time do I want to invest?
• How much extra revenue do I need?
• How will my business impact my work-life balance; i.e., time with family and friends?
• Will my startup costs be overwhelming?
• Do I have other commitments (e.g., volunteer work) that will suffer?
• How much stress can I afford to add to my life?

How to finance your post-retirement business

Whether you plan to use savings or get a small business loan, you’ll likely need some upfront capital to invest – even if it’s just to print fliers for your next quilt show. If you need funding options for your new retiree business venture, here are a few to consider.

Bootstrapping

If you’re advanced in your hobby, you already have plenty of equipment and knowledge. Startup costs may be low enough for you to finance your new business through bootstrapping – self-funding your business using your own capital and operating revenues. 

Bootstrapping keeps you debt-free. However, self-funding also means you may lack the necessary upfront revenue for hiring or advertising – two essential components to business expansion.

Still, bootstrapping is good for retirees because it helps minimize risk. Older entrepreneurs don’t have decades to correct their finances from a business that’s gone bust. Start small and test the market to see if your business is viable before taking on debt or dipping into your nest egg.

Personal loans

If getting your new business off the ground means a small purchase – materials, equipment, ads – you may want to take out a personal loan. Borrowers with a good or excellent credit score (690 or higher) enjoy the widest repayment options and lowest interest rates. Generally, personal loans have lower APRs than credit cards, especially for high-credit-score borrowers.

Government funding

The federal government helps seniors start or expand new businesses by providing loans guaranteed by the U.S. Small Business Administration. Because the SBA guarantees loans (much like the Federal Deposit Insurance Corporation) for lenders, it makes it easier for seniors to access capital from private lending institutions. The SBA’s online referral tool helps small businesses connect with participating lenders.

Venture capital

If you’d rather avoid lending institutions and find a venture capitalist, the SBA can help with that too. The agency can connect senior entrepreneurs with small business investment companies (SBICs) – privately owned companies that are licensed and regulated by the SBA. SBICs offer loans or purchase equity in companies.

Crowdfunding

Sometimes, the best way to start a new business is to turn to the general public for financial support. Crowdfunding sites like Kickstarter, Indiegogo and GoFundMe let you do just that. By creating an online fundraising campaign to start your business, you can solicit funds from online donors. Instead of repaying them, you reward them with gifts, like the first version of your product or a signed copy.

Retirement accounts

While probably a last resort, drawing funds from your retirement account is a workable funding option that offers more investment control compared to lending institutions. If you have a 401(k) plan, the government allows you to borrow against, invest in or withdraw from your retirement account, but there are plenty of hoops to jump through. Consult a retirement account professional before withdrawing funds.

Rollovers as Business Startups (ROBS) let you roll over your retirement savings into a new 401(k) and invest it into your own company. It’s a complex process, and while you avoid taking on debt and penalties, it puts your retirement savings at risk.

How will your side business affect your taxes?

Your small business will definitely impact your taxes. Hopefully, you’ll see a profit to report on your yearly income taxes. That’s a good problem to have.

However, your tax preparation will become more complicated; you must save receipts to deduct business expenses and record overhead costs. Here are some ways starting a business will affect your taxes:

Social Security benefits

After you turn a profit from your new business, you may have to start claiming a percentage of your Social Security benefits as taxable income, especially if Social Security benefits were your only source of income previously. The standard percentage is 85 percent, but the exact percentage will depend on your combined income. You can use the Notice 703 IRS form to calculate how much of your Social Security benefits may be taxable.

Business expense deductions

Like any other for-profit business owner, you can reduce your tax burden by claiming business expenses on your tax returns. The IRS requires a business expense to be “ordinary and necessary” to the operation of your business.

Two of the most common business expenses for small business owners are the business use of your home and the business use of your car. You can deduct a percentage of your costs for each of these, whether it’s deducting the cost of a home office or standard mileage rates for travel. You can even deduct part of your business startup costs.

Business expense deductions definitely complicate your yearly tax filing, but millions of seniors manage it. You’ll need to keep receipts for your expenses and track your car mileage, but the tax savings are worth the time.

Your tax rate

Your new business profits will increase your taxable income and thus your tax rate. Depending on your income level, this may put you in a new tax bracket. Because your extra income can affect what percentage of your Social Security is taxable, it’s smart to calculate your retirement tax rate to find out how much your business profit will impact your taxable income. Fine-tune your tax rate estimate by first determining your standard deduction for retirees.

Self-employment taxes

When you worked for an employer, it withheld your FICA, federal, state and other payroll taxes. As a self-employed business owner, it’s now your responsibility to track and report incoming funds. Generally, individual business owners must pay self-employment tax (Social Security and Medicare taxes) and income tax. You must file an income tax return if your net earnings from self-employment are $400 or more.

Quarterly reporting

Business owners who expect to owe more than $1,000 in taxes for the current tax year – after subtracting their withholding and refundable credits – must make quarterly self-employment payments to the IRS. Instead of a Form 1040, you’ll use Form 1040-ES to estimate and file your quarterly self-employment taxes. You can pay your quarterly self-employment taxes on the IRS website.

Because of limited savings, small businesses can find it difficult to pay their quarterly taxes. Ensure you accurately estimate and withhold them throughout the year so you’re not surprised with a big tax bill.

Resources for starting a small business

Here are some additional resources to help you learn how to make money in retirement:

Entrepreneur training

• Small Business Administration: The SBA offers free online courses to help you start and run your small business.
• Chamber of Commerce Foundation Blog: Find various articles on entrepreneurship.
• Khan Academy: Watch several interviews with famous entrepreneurs about their strategies.
• Kutztown Small Business Development Center: The Kutztown University SBDC offers free online learning programs that cover various topics, including business planning and marketing.

Networking

Professional advice on starting your small business helps you avoid common mistakes early on. Here are some resources to connect you with the right people.

• SCORE: This is a nonprofit entrepreneur network that connects seniors with expert business mentors.
• Small Business Development Centers (SBDCs): SBDCs provide free, extensive, one-on-one professional business advice.
• Meetup groups: Meetups are a great way to find other small business owners, freelancers or individuals who share the same hobbies as you.

Other resources

• Veteran Entrepreneur Resource Guide: This resource connects military veteran entrepreneurs with small business resources.
• “Developing a Business Plan“: This free online guide explains how to create an effective business plan.

Skye Schooley contributed to this article. Source interviews were conducted for a previous version of this article.