A Risky Retirement Strategy

A new poll by TD Canada Trust highlights the importance of planning for retirement at every stage of your business.

The poll found that 66% of business owners who plan to sell their business will partially fund their retirement with the proceeds. An additional 14% say they will rely on the sale of their business to fund their entire retirement, a risky proposition says John Tracy, Toronto-based senior vice-president of retail savings and investment at TD Canada Trust.

"If your retirement event is on the horizon, it's not so much about starting small, but instead finding meaningful ways to contribute to your retirement fund," says Tracy.

For those approaching retirement, he recommends setting up a strategy that minimizes your tax liability, such as issuing dividends to fund your RSP, as they are often paid at a lower tax rate and allow a greater year-end contribution. Another strategy is income splitting, in which income is shifted to a family member in a lower tax bracket to reduce your overall tax bill. Any tax refund can then be funneled back into your RSP.

Even those who have decades before retirement should start thinking about the future by making a habit of saving outside of the business. "That typically gets lost in a small business; people will put all of their money back into the business, aside from what they need to live," says Tracy.

He recommends setting up an automated savings plan in the form of a registered savings plan or tax free savings account, even if your contribution is nominal, to start the saving habit early.

Regardless of your retirement goals or timeline, says Tracy, it's always good to seek advice from experts to understand what your retirement will look like and how to get there.

"There are so many things that factor into what the value of your business will be at the time that you want, or hope, to retire. It's better to diversify and save in addition to hoping to sell your business," says Tracy.

The survey  in early October polled 609 Canadian small-business owners who are Angus Reid Forum panel members.