As a small business owner it’s probably hard to imagine, but, at some point, you will retire. How you will be able to retire is, from a financial perspective, probably harder to imagine.
With the right plan you can.
The right plan can:
1. Ensure a steady income. After all your hard work, you deserve financial security, independence & peace of mind during retirement;
2. Hedge against inflation. You can preserve the purchasing power of your savings if you hedge against the impacts of inflation;
3. Defer tax. Registered retirement accounts like RRSPs offer you tax-deferred growth; your investments compound without immediate tax implications;
4. Reduce tax. Contributions to your RRSPs reduce taxable income, providing immediate tax benefits. Strategic withdrawals in retirement will minimize tax payments
YOUR RETIREMENT PLAN
1st: SET YOUR RETIREMENT GOALS
Determine what kind of lifestyle you want for your retirement & estimate the cost. You’ll need to be financially able to cover the costs of your goals.
2nd: SET YOUR MILESTONES
Identify when you want to achieve your milestones e.g. paying off debt, purchasing property, traveling. You’ll need to have the money necessary to pay for these milestones.
3rd: CONFIRM YOUR CURRENT SITUATION
Make a list of your assets, liabilities, income & expenses. Then, calculate your net worth to understand your starting point and the amount you’ll need to meet your goals & milestones.
YOUR ACTION PLAN
1. SAVINGS PLAN & INVESTMENTS
The easiest way to meet your goals & milestones is to have consistent savings. You can have consistent savings by setting up automatic money transfers to your retirement accounts. As your income grows, increase the amount you save using automatic transfers.
Spread your investments across various asset classes to manage risk & increase potential returns. A professional advisor can help develop an investment strategy that aligns with your risk tolerance & time horizon. Periodically review your portfolio to make adjustments, as needed, so that you stay on track.
2. RETIREMENT ACCOUNTS
Select retirement accounts that offer tax advantages & that align with your savings goals, such as RRSPs & TFSAs.Take advantage of the contribution limits to maximize your retirement savings.
3. DEBT
Pay off high-interest debt to reduce your financial burden. Having a structured plan to eliminate debt before retirement is a good way to go.
4. HEALTHCARE
Consider potential healthcare costs & plan for long-term care, if necessary.
Look at insurance options for medical expenses in retirement, including private insurance plans that complement the healthcare provided by the Province.
5. GOVERNMENT BENEFITS
Determine the eligibility requirements for government benefits like CPP & OAS.
Plan the timing of your benefit claims to maximize payouts; consider deferred CPP benefits.
REVIEW
Each year review your plan; ensure it’s still aligned with your Retirement Goals. If necessary, adjust your plan to respond to changes in investment returns, your health or family circumstances.
Mary Ruijs, ASE