Updated: May 26
Retirement, it seems like such a far off thought to many of us doesn't it? But as entrepreneurs, it's SO important to have an intentional plan in place!
Remember, the choices you make today will reflect the type of life you live 10, 20, 30 years from now. So having said that, retirement is something that should be planned for as early as possible!
By doing this, it ensures that you are safe and comfortable once you stop working full-time. However, this seems to be a problem for many. BNN Bloomberg reports that 30% of Canadians have nothing saved for retirement, while 19% have less than $50,000 saved. Admittedly, saving for retirement isn't easy, given that you're juggling your current bills with future financial plans. Plus, according to HRD Magazine, the average Canadian employee needs 11 times their final pay if they want to retain their current standard of living during retirement. And without a proper retirement savings plan, many Canadians will have to retire at age 70. These financial planning issues are all the more prominent for self-employed entrepreneurs. As a business owner, it's easy to get wrapped up in day-to-day affairs. You're running an enterprise after all. Even then, it's important to take a step back from your hectic schedule and plan for your retirement, so that you can fully enjoy your golden years.
Saving for Your Retirement First, you'll need to pick your retirement plan (or plans), and you have several options to choose from: Government-sponsored plans These plans include the Canada Pension Plan (CPP) and the Old Age Security Program (OAS). The CPP is a monthly, taxable benefit. The average payout stands at around $680 per month, though it may fluctuate based on your average earnings, your contributions, and the age you availed of the CPP benefits. Also, take note that you'll need to apply for the CPP to specify when you want to start receiving payouts. As for the OAS pension, it's another monthly, taxable benefit, but you don't necessarily have to apply for it. The amount you receive depends on how long you've been a Canadian resident after the age of 18, but the maximum payout is around $618. It's worth mentioning that government-sponsored plans alone are not enough to fund your retirement. That's why they need to be used in conjunction with other plans. Employment-based plans These types of plans apply to both you and your employees. Under this type of arrangement, employers and employees contribute money to the pension, which will then serve as income after either the employee or employer retires. Pension schemes can be availed from different financial institutions, so make sure to choose one that best suits your business and the workforce. Personal retirement savings plans Your two main options for this are Registered Retirement Savings Plans (RRSPs) and Tax-free Savings Accounts (TFSAs). An RRSP is a tax-advantaged account that can hold savings and investment funds. Just be wary of making any RRSP withdrawals early as the amount you take out will be counted as taxable income for the year. Moreover, early withdrawals from your RRSP significantly reduces how your wealth compounds over time because it earns money on both your initial contribution and your investment earnings. If you really need to withdraw funds from your retirement pot, it might be better to do so from a TFSA. TFSAs work in the same way RRSPs do. The biggest difference is that money can be withdrawn at any time, tax-free. So, while TFSAs might be useful when your business needs a bit more cash, an RRSP would be more efficient in getting you to save for your retirement.
The Future of Your Business
When it comes to running a business, you should always operate with an exit plan in mind. And deciding on your business's future once you're out of the picture is an important step in retirement planning. On one hand, you can hand over the business, whether it's to a family member, an employee, or a third party. Alternatively, you can sell it instead of simply handing it over to boost your retirement savings. Once you've given the reigns to someone else, you can opt to step away completely or offer your services as a consultant. Whatever you choose, have a solid plan a couple of years before you decide to step down. This allows you to make the necessary preparations for both the business and your retirement. If you need some help with planning the transition, check out this article on ‘Effective Goal Setting Strategy’. It'll help you organize your thoughts and lay down the steps to your retirement goals.
Thanks so much for reading!