More Americans are beginning to rely on additional income during their retirement, over and above their savings or social security benefits. Western & Southern Financial Group's research shows that 38% of Baby Boomers are generating or plan to generate a significant portion of their retirement income from a side business, instead of conventional savings.
Consideration should be given to the legal and tax implications of starting a small business if you plan to work during your retirement. Regardless if it's your principal source of income, or just something to enhance your savings, your side business can considerably affect your monthly expenditure.
A side business refers to an enterprise you initiate and run independently, typically controlling your own schedule and choosing the amount of work you want to undertake at any particular time. Unlike starting a conventional small business, the purpose of a side business is not to earn full-time income. Upon retirement, a side business can offer additional income over and above other sources like social security, retirement accounts, pensions, or annuities.
To start a side hustle, you can convert hobbies or activities you enjoy into income generating opportunities. Moreover, your existing skills or professional credentials can be capitalized if you are not interested in monetizing a hobby.
Even though a side hustle doesn't aim to generate full time income, the process of starting one deserves serious consideration to prevent wasting time or resources on an ill-formed idea. Select a side business that doesn't call for costly training or setup to keep your expenses low.
Any required permits will vary depending on the nature of your business. Certain side hustles might not require any licenses and permits. If you start a side business, that income is viewed as self-employment income, and you'll be responsible for paying estimated taxes on the income you earn.
Estimated tax payments cover both income tax and self-employment tax. It is necessary to pay tax as you earn throughout the year if you anticipate owing $1,000 or more when you file your tax return. Failure to pay estimated tax throughout the year could result in additional penalties at tax time.
Remember, income from a side hustle can affect how much you receive in social security benefits. There are specific income thresholds where benefits could be reduced until you reach full retirement age after which earned income no longer reduces your benefits.
Understand the legal and tax obligations of having a side hustle and be aware of how it impacts your social security benefits. Over one-third of Americans forecast their primary source of income will be from a side hustle rather than retirement accounts or Social Security benefits. If you're one of them, it's crucial to be informed.