If you are a business owner, you probably focus your efforts on the day-to-day tasks to keep it going. You may not have thought about retirement, even if it is fast approaching. Don’t worry, and you are not alone. More than three-quarters of small business owners do not have a retirement plan, either for themselves or for their employees.
While some workers benefit from a pension plan or a supplemental pension plan, this is not the case for most small business owners. It is you who must plan your future and determine how you will finance your retirement. Here are some questions to help you prepare.
How soon would you like to retire?
It is a good starting point for planning your future. Even if you have only a vague idea of when you will retire, the important thing is to have a goal to achieve. This will help you think about the number of years you want to continue working, what you would like to do after retirement. It will also help you determine how much you can save by then.
There are many factors to consider, such as your physical and financial health, when determining the date that is best for you, your family, or anyone else with whom you plan to retire.
What lifestyle do you want to have in retirement?
It is essential to consider the lifestyle you want to have in retirement when determining the amount you will need to take full advantage of it. Consider how often you would like to travel and ask yourself if you would like to volunteer or stay home. Retiring does not mean that you have to stop working completely. You could delegate specific responsibilities, work part-time, or act as a consultant while your successor becomes familiar with the business’s inner workings.
How will you finance your retirement?
The good news is that you can choose from several options to finance your retirement. Government programs such as the Pension Plans, the Old Age Security Pension Plan can provide you with basic income. And during your working years, you can take advantage of the tax benefits offered by the registered retirement savings plan, and the tax-free savings account to save for retirement.
The individual pension plan and the retirement agreement are also options available to business owners who finance their retirement themselves.
If some owners count on their business’s sale to finance their retirement, this strategy is not without risks, the unknowns being numerous. An important question is whether someone will be ready to buy your business when you put it up for sale. It would help if you also had it appraised to find out its fair market value before you start looking for potential buyers.
Financing your retirement involves many important decisions. It would help if you spoke to your advisor about what to do to diversify your retirement income sources.
What future do you want for your business?
Every owner has to leave his business sooner or later. However, to be in good financial health at retirement and protect your assets, establishing a succession plan is essential.
Here are some scenarios to consider:
- Transfer or sell the business to a family member
- Sell to a partner or employee
- Sell to a third party
Even if you know who will take over your business, it will take time – perhaps a few years – to help them prepare to take over. Your successor may need to acquire specific skills and build relationships beforehand, in addition to having to become familiar with all aspects of the business.
It would help if you did not answer all these questions alone: your advisor, accountant, and a lawyer can help you with your planning, be it estate planning, tax-efficient investments, or retirement savings plans.
Knowing that you are ready for various situations can save you a lot of worries and allow you to focus on your business. Even if retirement is still far away, having a plan means that you can cope with any eventuality. It is merely a good business strategy.
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