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Retirement Income Blueprint for Business Owners

You’ve spent years of your life building and running a successful business. While building a company is a great accomplishment, if you don’t know your way out, you’re shortchanging yourself and all the work you’ve done to build it.


Creating a blueprint for your retirement is of utmost importance. With a company riding on your shoulders, and no company pension plan to fall back on, it’s even more important that entrepreneurs and business owners alike take control of their retirement with a well thought out retirement plan.

The most important part of creating a sound retirement plan is the very first step – sitting down and planning it all out. So, in the interest of helping you achieve this, here’s a retirement income blueprint specifically designed for business owners to get you on the right track.

1. Start planning now

It’s worth saying again and again: failing to plan is planning to fail. The earlier you start planning for retirement the better off you’ll be when you retire. The most important part of your retirement blueprint as a business owner is giving you and your plan room to breathe. There are many steps along the way to retirement for a business owner that require time. Ripening investments are just one aspect of that.

Allowing yourself space to fully prepare for and implement your plan gives you the ability to do it right, and avoid cutting corners out of convenience or impatience. Give yourself enough time to tackle each stage of the retirement process and you’ll be better equipped to execute your plan.

2. Determine your ideal retirement

Beginner drivers are taught to look at where they want to go, instead of fixating on any obstacles in their way. This is also true of financial planning. Before you go anywhere, it’s important to know where you want to go.

For many business owners, they answer the question with: more savings and more investing. But remember, retirement planning isn’t just about the proper investments. Investments are just tools to get you where you want to go. Before you set up your investment plan, it’s important to ask yourself what you want your retirement to look like.

Ask yourself questions like:

  • Where do you want to live?

  • What do you want to do? And, do those goals have a time limit?

  • How do you want to involve your family in your retirement?

There are a number of questions you need to ask yourself and a financial planner can help you through that process. This will ultimately allow you to figure out how much money you’ll need to live the life you want now and into your retirement.

3. Get on track to your ideal retirement

You know what you want, now it’s time to plot out the path. There are many considerations that must be taken into account when planning your retirement – your assets (including your business), methods of minimizing taxes and methods of savings all come into the equation.

For business owners, things get more complicated still. You have the future of your business to plan for. From proper succession planning to balancing investments in the company along with retirement investments – proper retirement planning for a business owner is as much about the present as it is the future.

Business

For employees, stepping out of their career is easy: give your notice, and exit when the time comes. However, for business owners, simply stepping out of your role is rarely possible. You need to plan your exit strategy so you can sell your business for what it’s worth, and facilitate a succession plan without everything coming down around you.

Without a proper plan, not only will your transition be rough, but your taxes will be much higher than they need to be. Keeping in mind that over 50% of businesses are sold because of unforeseen circumstances such as death, disability, divorce, dissension and disinterest, the time to start planning is now! Some years before you’re ready to retire, you should begin dialogue with tax and legal professionals to ensure your business is effectively structured to minimize taxation and make the transition/sale/succession the most successful.  

Personal

As a business owner, your personal financial planning is equally important. There are no corporate plans for you to jump on, so your savings (and even your CPP contributions) are entirely up to you.

Here are some important considerations:

  • Individual Pension Plans (IPPs) – IPPs are best suited for business owners to replace RRSP savings. The good news is contribution maximums are higher and all eligible contributions are tax-deductible to the corporation but won’t be taxable to the owner until the plan starts to generate pension income. They are also creditor-proof, which gives added security. However, you must receive pension-eligible T4 employment income to make use of IPPs.

  • Many people view life insurance as separate from retirement. Life insurance is a tax-efficient means of saving money for when the worst happens. But it can also be used to supplement retirement income and equalize an estate for example if one child is set to take over the business and other children in the family aren’t a part of that business.

Be sure to align your investments and insurance with your retirement objectives.

4. Savings and withdrawals – your plan in action

Everyone always talks about savings, but a proper retirement plan is as much about when and how you use those savings. Proper planning for pulling money from your nest egg will help you minimize your post-retirement taxes, allowing you a retirement that fits your needs and desires.

You need to know when to take out your investments. Some rules of thumb are:

  • Use the least flexible income sources as they are available

  • Use the least tax-efficient income sources in lower tax brackets.

Planning your spending is just as important as planning your savings with regards to retirement. Always remember to determine when it is optimal to use any of your personal assets.

Blueprint Review

Retirement is not a single stage in life, as your body changes, your lifestyle will change, so take that into consideration. Retirement plans should be regularly reviewed, both before and throughout retirement.

Step 1: Start planning now

Step 2. Determine your ideal retirement

Step 3. Get on track for that retirement

Step 4: Put your plan in action

Talk to your financial advisor to create your own unique blueprint for retirement. The time to start building is now!