When your dream kills your retirement

It's something many of us dream about every day: retiring from that 9-to-5 and starting a business.

It might be opening up a bed and breakfast. Or creating a little used-book store at the beach. It could mean doing what you've done all your life, just not having someone bossing you around.

It makes perfect sense for baby boomers. After all, we aren't sitting back in our easy chairs and watching TV all day. Baby boomers have redefined retirement.

"We are seeing huge trends of more people starting business after retiring from normal jobs," says Katherine Dean, managing director of wealth planning for Wells Fargo Private Bank.

A report by the Kauffman Foundation, "The State of Entrepreneurship," says baby boomers are in the best position to start new businesses, and with longevity increasing, they will be an economic force for years to come. It says Americans 55 to 64 started 24.3 percent of new businesses last year, up from 14.8 percent in 1996.

But although starting a new business, especially in retirement, can be one of the most exhilarating experiences in your life, it must be done with a lot of planning and foresight. Otherwise, you might run through your retirement savings and be forced back to work at a time you least want to do that.

"I've seen people make a success out of it, and I've seen people blow through their life savings," says Scott Hanson at Hanson McClain Advisors in Sacramento.

Hanson says one client in her 70s had to return to work because, despite his warnings, she kept withdrawing from her retirement accounts to fund her failing business. "There's a side of me that says that if you have a dream, why not try it?" he says. "But you need to make sure you have a certain amount of capital you can't lose - and know that ahead of time."

Andrew Rafal, president of Bayntree Wealth Advisors in Scottsdale, Ariz., says that often the best option for aspiring entrepreneurs is to be a consultant - "starting a business using their intellectual property and brain and experience from 25 years."

"You can use the relationships you have built and create another income stream," he says. "You don't have to have employees."

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Some tips:

- Know how much money you can afford to lose.

"And when you are through with that," Hanson says, "don't raid the rest of your retirement."

- Have a business plan. "Ask yourself tough questions," Dean says. "Is it a good idea? Is it a match for my passions and talents?"

- Get advice. "Use your connections," Dean says. "We are all so hooked-up now on social media, and people are willing to provide mentorship and guidance. Why would you not tap into that?"

"It's our job to give them the good, the bad and the ugly," Rafal says. "Sometimes we tell them it's the wrong decision. They may not take the advice. But the client respects the honesty."

- Consider the time commitment. Weigh how much flexibility you will have, Dean says: "Will it take 80 hours a week, or is it one you want to put in 20 hours?"

"A book called 'The E Myth' by Michael Gerber talks about how people go into business thinking they will have freedom," Hanson says. "Instead the business owns them, and they work 80 hours a week. It's not so glamorous."

- Protect your assets. This is often missed by new entrepreneurs. "How are you going to structure the business?" Dean says. "Look at a LLC or corporation. A corporation can be the best protection but can be more difficult and expensive to set up and maintain. Look at the tax aspects.

"People need to think about it legally and tax-wise, and they have to protect themselves," she says. "If you are operating a dog-walking business and the dog gets off the leash and bites someone, who is responsible?"