Small business owners risk coming up short in retirement
It’s not just individuals who are failing to plan and prepare for their retirement. Small business owners are no better, forced to choose between investing in the business today or putting something aside for a faraway goal.
Squeezed between slippery economic conditions and shrinking profit margins, almost half (49%) of those owning their own businesses are forced to make a decision over either contributing to their RRSP or making their business grow, according to a BMO Financial Group study.
Are you one of them? How do you balance the two? Are you hoping that you can tap the equity in the businesss down the road?
“Although it’s tempting to concentrate on investing in your business, it’s critical for entrepreneurs to have personal retirement savings as well, since they can’t rely solely on the future value of their business to provide for their retirement.”
That's why fewer self-employed Canadians (74%) reported they were financially prepared for retirement compared with those that are paid employees (85%), according to Statistics Canada.
Clearly, the bank wants your money. But tapping a business for retirement income can be tricky, particularly if the next generation needs the cash flow to keep things going.
That's why, if market conditions are not optimal for the selling of the business, retirement savings -- likely in an RRSP -- can act as a safety net, BMO maintains.
There's a tax benefit as well. For unincorporated small enterprises, money made in the business is considered personal income and therefore RRSP-eligible.
As a small business owner, do you set aside a regular amount for retirement? Or are you ploughing money back into the business to put it to work more effectively?
By Gordon Powers, MSN Money
Posted by: Steve | Jul 22, 2021 2:59:06 AM
I'm buying rrsp's for a tax break but the amount should be more than I am allowed. especially with a 1.5 return, It is smarter to put back in the business but there is just more tax to pay.
Also I wish there was a better policy for hiring new staff, I feel if the government wants more people
working they should give better tax breaks in this also., TOO much tax in Canada.
What are your thoughts?
Posted by: Jeff | Jul 22, 2021 2:45:52 PM
I always max out my RRSP every year.. Carry no debt.. So I make sure I put away as much as I can so that I can do this. I also need it for the tax break. I am always juggling this issue. I make money but then have the issue of paying tax through the company. Or take it myself and having to pay the tax.
I think that the best RRSP is your home. Keep upgrading till you have a house that is paid for and worth $2-3M plus. Then when your ready, sell it off and have no income tax and use that money to retire. Plus what ever you put away.
Depending on your retirement plans you can always purchase a second place that you can retire so that you send up with a home to retire too.
It all comes down to your priorities. IF you want to put it away you can. Even a little is better than nothing.