5 Reasons Why Business Owners Should Not Delay Planning for Retirement
By Kaylin Fitzsimons
As a business owner, you face plenty of challenges throughout your day. Attracting and retaining customers, maintaining a healthy work environment, and fighting off competitors—all while protecting the bottom line—is more than a full-time job. With so much on your plate, it’s no wonder you can’t find time to sit down and plan for your retirement. On that note, here are five reasons why business owners should not delay their financial planning.
1. Financial Planning Can Alleviate Stress
Do you feel 100% confident about the myriad of financial choices you make day in and day out? Have you encountered more complexity as your business has grown? Partnering with a financial professional can help alleviate the stress and anxiety that comes from trying to figure out your finances.
Think about all the time you spend worrying over finances. Are those thoughts preventing you from making great memories and living your life? For many of our clients, the answer is yes. But it doesn’t have to be that way.
Financial planning can bring confidence in knowing where you stand and how to achieve your goals, provide clarity by defining a path from point A to point B, and allow you to get the most out of your life along the way.
2. Don’t Put All Your Eggs in One Basket
Many business owners feel that their business is their best investment. They spend most of their time making sure they are surviving, reinvesting their money back into the business in hopes that it will grow into something that will keep them afloat during retirement. They believe that investing in their business is something much less risky than investing in the stock market, which is not always true.
Many business owners discovered the hard way during the Great Recession and the COVID-19 pandemic that betting all their chips on their business can wreck a comfortable retirement if the business goes south. Unforeseen circumstances can leave business owners near retirement age unprepared and could force them into selling or liquidating their business on unfavourable terms. Getting serious about retirement means diversifying your money into more than just your business. Your Corporate Tax Advantage (the personal rate of tax 53.53% less the corporate rate of tax either 12.2% or 26.5%) gives you either 41.03% or 27.03% more to invest which makes it easier to diversify your wealth into non-volatile passive investments that can fund your lifestyle in a Tax Smart Way today to further build more wealth for retirement.
3. You’re Not Taking Advantage of Compound Interest
Would you rather be given $1,000,000 up front or a single penny that doubles in value every day? If you went with the second option, you would only have $5 after ten days, but by the time the 30th day rolls around, you will have over $5 million in pennies. This same concept can be applied to your retirement account, but because retirement investments are at the mercy of the highs and lows of the stock market, it will take more than 30 days to see that kind of growth.
If you wait to invest, you are missing out on growth year after year, and the resulting loss of earnings can be substantial. Not to mention the potential for loss when you try to invest yourself without the proper advice and guidance of a professional. We’ve found that many clients are often invested too conservatively and miss out on the opportunity for significant growth in even just a slightly riskier portfolio.
4. Tax Strategies Take Multiple Years to Implement
A successful business strategy is one that cuts expenses down as much as possible, and a key component to cutting expenses is lowering your tax burden. The same goes for your personal finances. Delaying retirement planning means you’ll miss out on several tax strategies that take years to implement, including:
Tax-Advantaged Retirement Savings
Advisors may recommend Registered Retirement Savings Plans (RRSP) as a great way to grow your wealth because you can reduce your taxable income and ultimately reduce the amount of taxes you owe.
However, many business owners choose to use their corporation as a tax shelter to passively invest to limit the size of their RRSP. These strategies can be proactively managed to get the right balance for you while saving you thousands of dollars in taxes each year. The earlier you start, the more you’ll save over time.
Withdrawal Strategies
When it comes to withdrawing from your retirement accounts, how you take your distributions can make all the difference. Each retirement asset has different tax characteristics. Creating a withdrawal strategy can help lower your tax burden by structuring withdrawals from each income source in a tax-efficient way.
5. Exit Plans Require a Lot of Preparation
Do you have an exit plan? Even if you are just in the beginning stages of your business, it’s imperative to have a plan for the future of your company because it will likely become one of your largest assets. Around 78% of small business owners plan to sell their businesses to fund their retirement, with the sale profits funding 60-100% of their retirement needs. (1)
If you are heavily relying on the sale or succession of your business to take care of your future financial needs, it’s critical that you start thinking about how and when you may want to leave your business and what you can do now to prepare so you receive the highest price possible. Having a strategic transition plan will make your company more appealing to buyers who want assurance that it will continue to thrive without you. Even if you’re passing the business on to family members, you need a plan in place to ensure that it continues to prosper and all family members are treated equally. Equally important is having a plan for retirement that incorporates the expected proceeds or income stream from the sale of your business.
Get Started Today
With so much on your plate as a business owner, we understand that navigating this journey alone can be overwhelming. At Lifecycle Wealth, we specialize in creating tailored financial strategies for business owners. Take the first step in planning for your future by reaching out to me at kfitzsimons@mandevillepc.com or calling 416-792-2333 to find out how we can help.
About Kaylin
Kaylin Fitzsimons is a Partner and Insurance Advisor at Wealth Preservation Consulting Inc., providing tax-efficient insurance solutions to high-net-worth professionals and business owners in Ontario, Canada. She is also an investment advisor at Mandeville Private Client Inc., which allows her to offer a wide range of investment options to her clients, including private and alternative fund solutions. Kaylin is focused on using insurance to add value to her clients’ lives and designing investment portfolios that allow her clients to minimize taxes. Kaylin is dedicated to helping her clients save money, make the most of their hard work, and experience confidence that their businesses and families are protected through tailored strategies.
Kaylin graduated from Western University with a Bachelor of Management and Organizational Studies. In her free time, she enjoys cooking or visiting her favorite restaurants, traveling, and learning about different cultures. She’s expecting her first child this summer. To learn more about Kaylin, connect with her on LinkedIn.
This publication contains the opinion of the writer. The information contained herein was obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made by the writer, Mandeville or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any securities. The information in this publication is intended for informational purposes only and is not intended to constitute investment, financial, legal, tax or accounting advice. Many factors unknown to us may affect the applicability of any statement or comment made in this publication to your particular circumstances. Hence, you should not rely on the information in this publication for investment, financial, legal tax or accounting advice. You should consult your financial advisor or other professionals before acting on any information in this communication.
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