Blog

As a small business owner, you’re used to doing everything on your own. Self-employment comes with a set of unique responsibilities that differ from regular employees. You’re always on-the-go and dealing with day-to-day tasks involved in running your business. With so many things on your plate, it’s easy to forget the future and live in the now instead.

Unfortunately, this is also how something as important as retirement planning can get swept under the rug. Since you don’t have company pensions or employer-matching programs to help fund your retirement — the onus is on you. Retirement planning is something that every small business owner needs to do at some point.

This can be a pretty tall order. When a company you work for helps you set up a pension, it’s almost out of sight and out of mind. You know it’s there when you need it. As a small business owner, you have to be far more hands-on in the retirement planning process. We’re here to help by offering a primer on how small business owners should approach saving for retirement.

Think Expenses Over Savings

One of the most common reasons small business owners don’t save for retirement is because it can be intimidating. They start thinking about how much they can really put into an RRSP or TFSA and get overwhelmed by the thought. Is there enough money in it? Did I make enough this month to put in the amount I wanted to? What happens if I need that money when my business isn’t doing good?

This is where you have to change your mentality when it comes to retirement planning. It’s not easy, but it is effective. You have to start approaching your retirement money as an expense versus savings. As a small business owner, you allot finances every month to different business expenses. Wouldn’t it be easier to treat your retirement planning the same way?

Sit down with a financial advisor and figure out how much money you can put in on a recurring basis. This way, you’ll stick to your plan, and it’ll feel like just another expense on your end. In reality, you’re adding money to secure your future.

Choose Your Savings Vehicle

There are a lot of different ways you can save for retirement. If you wanted to, you could even put all your cash under a mattress, although we’d definitely recommend against that option!

RRSPs are a common choice among small business owners in retirement planning. These plans allow you to deduct up to 18% of your income to a maximum of $26,500 in 2019. The caveat is that you need to earn more than $145,000 for that maximum 18% deduction.

TFSAs are another popular option for small business owners. The benefit of this type of plan is that you can take out money whenever you need it, unlike an RRSP. Whether that’s all too tempting depends on the person. That said, it's not tax-deductible like an RRSP, but any interest or growth on a TFSA when you withdraw for retirement is tax-free.

What’s Your Retirement Income?

This really varies from person-to-person. Some people are comfortable retiring with very little, and others want to travel and see the world in style. You should take some time to envision what your ideal retirement lifestyle looks like. That way, you’ll find it easier to navigate how much money you need for it.

That number can also impact the age in which you choose to retire as well. If you don’t need that much, maybe you can retire between 45-50. For people who are happy working longer and want to save a bit more, retiring after the traditional age of 65 is also an option.

A great tool to use is the Canadian Retirement Income Calculator. It will give you a better understanding of where you can expect to be financially based on your savings and contributions. If you need more help, it’s always great to speak with an experienced financial advisor.

Contact us today to find out how we can help you reach your financial goals in retirement.