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6 steps to starting a consulting business in retirement — and ways it can help your budget beyond the income

How to start a consulting business in retirement (Thomas Barwick via Getty Images)

Working as a consultant makes it possible to ease into retirement after you’ve said farewell to the office. Bringing in more money during retirement has a host of financial benefits beyond an extra paycheck — from lowering the taxes you pay to increasing the amount you receive through Social Security. It doesn't hurt that buttressing your nest egg can make it a lot easier to fulfill your retirement dream of, say, traveling the country or learning Italian, especially after a few years of high inflation.

After a full career of work, you likely have the skills and experience to set off on your own today. However, you’ll want to take a few steps to set up a business that can protect you from legal issues and maximize your profits.

Starting a consulting business could be as simple as reaching out to a former employer in your industry for freelance work. But even if you’ve everything lined up, you may want to follow these steps to make sure you’re getting the most out of this new phase of your career.

It can feel jarring to suddenly stop working. Even if you’ve always dreamed of a day when you could make your own schedule, it’s possible you’ll find yourself missing being in an office around people — or the feeling of earning your own money.

You may find that it takes time to figure out if a desire to return to work is a reaction to the drastic change in your lifestyle or something you actually want to do. It’s true that working can keep you sharp and social, but there may be more enjoyable ways to stay stimulated, like joining a community garden or auditing college courses.

If you haven’t already before you retired, take some time to go over your finances. You can do this on your own with a budgeting or financial app, yet many retirees find the help of a financial advisor to be worth the investment. Understanding your Social Security, Medicare and retirement account benefits is not easy work, and a financial professional who focuses on retirees can clarify if earning extra income will help or hurt your finances.

Even if you’re continuing a career you’ve done for decades, working for yourself often requires you to wear more hats than you did as an employee. Research your industry and other professionals in your field to get a sense of the standards you’ll need to meet to attract clients. It’s possible that you’ll find you need to enroll in courses or a certification program to remain competitive.

Though it’s not a necessity, a professional skills analysis can also be beneficial at this stage. The idea is to find points you need to improve or outsource. (For example, I know that accounting isn’t my strong suit, so I’ve invested in a CPA to do my taxes as a freelance writer.) At the end of this stage, you should have a sense of who you are professionally and what you have to offer.

After you’ve decided to retire, sit down and sketch out your general goals. You don’t need a formal business plan, but it’s helpful to have a sense of what you need to do, want to do and won’t do as a consultant.

Here are a few items to consider:

  • Startup costs. Estimate how much money you’ll need to invest in your consulting business, including equipment, software and transportation.

  • Payment and fees. How much do you want to charge for your service or product, and how do you want to be paid? Many consultants charge by the hour, but some prefer to be paid by the project on a sliding scale, based on value to the client and the level of difficulty on your end.

  • Hours. How much time are you willing to spend per week on this type of work? Is there a minimum number of hours you need to work to maintain your standard of living? Aim to stay in that sweet spot between earning too little and burning yourself out.

  • Professional boundaries. Take note of the kind of work you aren’t willing to do for clients, and avoid jobs that require that kind of work. (I generally won’t do social media or video work for my clients, for instance.)

  • Growth goals. How many clients do you want to have by the end of the next quarter? Next year? Next five years? Don’t be overly ambitious here. Overly rapid growth is one of the leading reasons businesses fail.

How you decide to structure your consulting business depends on how much paperwork you’re willing to do to protect your assets and save on taxes:

  • Sole proprietorships generally don’t require paperwork, but you’re fully responsible for all business losses.

  • Limited liability corporations — or LLCs — offer some protection from business losses and debts, without too many legal requirements. But as an individual, you’ll need to elect to be treated as a corporation come tax season in order to file your business taxes separately.

  • S and C corporations offer even more legal separation between businesses and owners than LLCs. However, these structures can be difficult to manage unless you’re working with a group of other consultants.

Not sure which is best for you? Find free assistance with deciding which business entity to go with at a local small business development center. These centers are designed to promote entrepreneurship through free advice, training and other assistance.

If you’ve set up an LLC or another type of corporation, it can help to open a business bank account for tax purposes. As a sole proprietor, you may want to consider setting up another personal bank account for your business expenses to keep things separate.

Dig deeper: How to find a trusted retirement advisor

Printing up business cards is no longer enough to get your name out there as a consultant. The type of web presence you need can vary by industry and the strength of your network — but, at the very least, clients should be able to verify that you are who you say you are.

How to set up a website

Services like WordPress and Squarespace make it simple to set up a basic website for your consulting business. You can set up a website for free, though investing in a domain name that matches your business looks more polished, and it might not cost you more than $20 a year to reserve the one you want.

Take a look at your competitor’s websites to get a sense of what to include. Most consultants use a website to showcase their work and offer a way to get in touch. For a more professional touch, consider setting up an email address connected to the site — formatted as [yourname]@[businessname].com — to avoid sharing your personal phone number.

How to create business accounts on social media

A social media presence isn’t necessarily imperative for every business owner, but it can help with certain industries.

Consider starting with platforms you already use:

  • LinkedIn is a great way to connect with other professionals in your industry. You don’t need to set up a separate business platform, but it does help to give your personal profile a makeover to ensure clients know you’re available for work.

  • Facebook and Instagram are part of the same company and offer several free and paid resources to help you reach new clients. Since they’re connected, it’s easy to post on both platforms at the same time.

  • YouTube and TikTok are the platforms where social media users spend the most amount of time — but doing well here requires you to make and upload videos regularly. Consultants in industries like tech, entertainment and wellness may find that the time investment is worth it, while others won’t.

Before you set up an account, consider who you’re targeting. The majority of social media users are millennials, with Gen Z coming in second. But even if you’re not trying to work with someone young enough to be your child (or grandchild), it doesn’t hurt to have a social media presence — if only to help Google recognize your website.

How to invest in SEO

A website will do you a lot more good if you show up in a browser's search results. Search engine optimization — or SEO — involves fixing up your website and social media accounts to appeal to search engine algorithms so that you appear in results for the kinds of queries potential clients use.

Websites like Moz can walk you through the basics to make sure that you’re using the right language to hit specific keywords and formatting your site in a way that’s accessible to all users. This might be enough for businesses that rely on word of mouth. Otherwise, consider hiring a professional. SEO work is a full-time job that requires a substantial amount of skill, but when done right, it can more than pay for itself by targeting and bringing in your best-fit clients.

At this point you should be ready to take on your first clients. A good place to start is by reaching out to people you already know who might be in the market for your services. Even if they aren’t right now, they can help you spread the word that you’re open for business.

Working for yourself can take some getting used to. If you’re struggling with the new workflow, take time to assess what worked and what can be improved after your first few jobs. If you find yourself spending too much time in one particular area, see if there’s room in the budget to invest in tools or professionals to lessen the burden.

There are several benefits to becoming a consultant during retirement — among them, earning more money means you’ll have freedom to do what you’ve always wanted to but couldn’t during a full-time job.

Here are ways that consulting in your field can directly benefit your bank account during retirement.

Nearly 90% of Americans are worried about the cost of retirement in the long term, according to a recent study from the National Retirement Institute, thanks in part to inflation. And there's a good reason for that concern. The Bureau of Labor Statistics found that Social Security and retirement savings made up only 66% of the average American’s income during retirement in 2022. Even without rising prices, there’s a chance you don’t have enough money saved to keep up your lifestyle after you’ve quit working.

Earning income from consulting is a great way to make sure your emergency fund is flush and you can afford to do the things that are important to you, like enjoying a weekly meal at your favorite restaurant or traveling to attend a grandchild's graduation. Income from consulting can also act as a buffer against the risks of an unpredictable stock market if your savings are tied up in a 401(k) or IRA.

Consulting in retirement can increase the maximum lifetime Social Security benefit you’re eligible to receive in a couple of ways. For one, it can make it easier for you to put off receiving benefits until after you reach retirement age if you retired early, extending the amount of time you’re able to draw from the fund.

Perhaps more importantly, consulting can also boost your maximum benefit by replacing some of your lower-earning years at the beginning of your career. That’s because the Social Security Administration calculates your benefits based on your highest 35 years of earnings, adjusted for inflation.

But you’ll need to hold off on receiving these funds until you reach full retirement age — or between 66 and 67, depending on when you were born — to up your Social Security benefit. For some people, this just isn’t financially possible. If that’s the case, you can still reap other rewards from consulting, but you might also face a long-term reduction in your total Social Security benefit.

🔍 Full retirement age. Your full retirement age— called the FTA — is the age at which you’re eligible to receive full Social Security benefits, and it depends on the year in which you were born. For example, if you were born between 1943 and 1954, your full retirement age is 66. If you were born in 1960 or later, your FTA is 67.

How consulting affects Social Security

You can start receiving Social Security benefits as soon as you turn 62. However, the government limits how much Social Security you can receive if you sign up for the benefit while still earning income before you reach full retirement age.

Here’s how it works:

  • Before retirement age — The SSA deducts $1 from your benefit for every $2 earned over $22,320. So if you make $45,000 that year, the SSA will deduct $11,340 from social security.

  • The year you reach retirement age — The SSA deducts $1 for every $3 earned over $59,520, up to the month before you’re fully retired. The SSA counts the month you reach retirement age as full retirement, so there’s no need to worry about earnings per week or per day.

  • After retirement age — Your income won’t hurt how much you receive in Social Security benefits after you’ve reached full retirement age.

Consulting after retirement can have additional drawbacks when it comes to government benefits. The IRS might tax your Social Security as much as 85% of standard tax rates. On top of this, bolstering your income could also result in higher Medicare premiums. Factor in these trade-offs before deciding to take on work in retirement.

Read more: Projected COLA for 2025: How it's calculated — and what it means for your retirement

Investing in a new business takes some cash, but depending on how you structure your consulting business, you may be able to write off many of those expenses come tax season.

Health insurance premiums, computers, phones and even some travel could all be deductible when April rolls around. Depending on how much you spend, these deductions could reduce or eliminate taxes on Social Security — on top of generally reducing your income tax.

Financial management software like Quicken can help you keep track of business expenses to ease the burden of tax time. And a certified public accountant or tax professional can help you understand and take advantage of credits or write-offs that you’re eligible for.

Read more: Tax breaks after 50 you might not know about

Americans ages 50 and older are collectively $9 trillion in debt, according to a quarterly report from the Federal Reserve, with the highest debt in mortgages and other housing costs. In this current high-rate environment, debt-saving strategies like refinancing your mortgage for a lower rate isn’t feasible for most folks.

A consulting gig can help you make additional payments toward your accounts without refinancing your home or tapping into your equity, getting you out of debt more quickly and cutting down the overall interest you’ll pay.

Read more: How to invest your money after retirement — and make it last through your golden years

Retirees spend an average of $54,975 a year, according to the Bureau of Labor Statistics, and it’s no surprise that the largest expenses fall within housing, transportation and health care.

Here’s average costs in retirement by expense category:

  • Housing — $11,186

  • Transportation — $8,065

  • Health care — $7,505

  • Groceries — $4,938

  • Utilities, gas and public service — $4,228

  • Entertainment — $2,589

  • Dining out — $2,412

  • Clothing — $1,129

  • Insurance — $451

Factors such as where you live and your health will impact how much you spend during retirement. And these numbers are likely higher across the board today, thanks to a higher rate of inflation in the post-COVID economy.

Average annual costs also won’t necessarily factor in one-time expenses that come with getting older. Most Americans prefer to stay at home as long as they can, which can be costly. Aging in place often requires home renovations and improvements — especially if your home is more than one story — or moving to a smaller space.

As you get older, services that help with household tasks like cooking and cleaning may also become a necessity. With rising wages, it’s possible the costs of aging will be more expensive than you anticipated.

Anna Serio-Ali is a trusted lending expert who specializes in consumer and business financing. A former certified commercial loan officer, Anna's written and edited more than a thousand articles to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in Business Insider, CNBC, Nasdaq and ValueWalk, among other publications, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020 for her work at Finder.