Small business owners work hard to keep their businesses churning profits, but unfortunately, a large majority of business owners are woefully underprepared for retirement. It can be very difficult for business owners to put aside retirement funds when the business they are running requires all sorts of capital to keep it running smoothly. The retirement planning difficulty for business owners to put aside money for their own retirement is trying to balance how much money to save for themselves and how much to contribute to the business to grow it further and possibly generate greater profits next year.
The most popular plan for small business owners to retire is the sale of their business to fund their retirement. This is not an unreasonable plan as all the business owner’s efforts go towards building and growing their business. This can be a very risky decision and small business owners need to take steps to protect their futures and be able to live comfortably after they hand their business over to the next generation. The experts at https://www.myretirementrehab.me/ show some staggering numbers when it comes to retirement and how prepared the average citizen is for it, as well as plenty of incredible information for creating your own savings plan regardless of your work or savings situation.
Getting ahead with your retirement planning is important and everybody should have a plan in place so that if the opportunity arises you can take advantage of it and not be stuck wondering what the best course of action is. Planning to sell your business for retirement is simply not enough, especially with so many variables in our busy lives. Not planning ahead leads to wasted time, effort, and money, and nobody like wasting any of those things. On that note, here are 6 tips that small business owners should use to help plan and prepare them for retirement.
Open an RRSP or similar account
For small business owners, RRSPs (Registered Retirement Savings Plan) can be the safest and wisest choice for retirement. Many countries have different names or systems in place for this, but most countries have a way for small business owners and those who do not have the ability to contribute through their payroll system to add funds to registered government savings plans. Money in these accounts is considered pre-tax and withdrawing any amount will add to your income for that year, whereas adding money will take away from claimed income and qualify for tax cuts.
These accounts typically have annual contribution limits, however, and income generated from interest is tax-free money. The best way for small business owners to fund this type of account is to set up a small monthly withdrawal as there is always a little more in the account than we like to admit. Not having to worry about contributing every month is hassle-free and you won’t even notice the money missing.
Tax-free savings accounts (TFSA) are a great tool when it comes to putting aside a little bit of extra cash. Usually, these accounts are also limited to a yearly maximum contribution but they are tax-free. The money is yours and free to withdraw at any time. Ask your financial institution to take a small amount per month and automatically deposit it into your account from your business or personal account.
Depending on your country of residence, your country may offer entrepreneurs some added benefits to help small business owners put money away for retirement. Make sure you look into your government assistance programs or speak with a professional in that department to see how the government can help you with your retirement planning and how you’ll live a comfortable life after the age of 65.
A sneaky way to save yourself some cash to contribute towards your business can be to hire your spouse or child to work for you. This will help to redistribute the cash flow of your business and allow you to pay less taxes as you have employees to pay for their work contributed. It is important to note that you cannot overpay your spouse or family member, their wage needs to be fitting for the position and in line with other employees’ wages. Many government agencies will look closely at spousal income when verifying and auditing businesses.
One of the riskiest retirement planning methods to invest your money for retirement is to invest in non-registered investments, such as the stock, cryptocurrency, and foreign exchange markets. These channels of income can be hugely risky, but as with any risk, the potential for payoff is quite big. Use this means of investing as a backup once you are comfortably putting money away into registered accounts. I cannot overstate how risky putting your money into these channels can be, however, we all know the saying “no risk, no reward.”
If you find yourself struggling to make contributions to your accounts consider selling a part of your business for immediate funds. This can help jumpstart a savings plan and it is important to remember that the sooner you put that money away the stronger the compounding effect will be, generating you more money over a longer period of time. Relinquishing control of anything less than 50% of your business will still leave you in charge but allow you to generate some immediate funds. This will affect how much you can sell your portion of the business for later on, however, if you followed the advice on this post, then you likely invested that money and made more than if you kept 100% of the company.
To sum up, the most important and easiest way to save and put away for your retirement will be to use registered government savings accounts through your financial institution. Once you reach your contribution max, start putting money aside into a tax-free savings account. Having both your registered accounts maxed for the year, you can then start investing in other means such as the stock market. If you can’t get on track for saving, but have developed a business, consider selling a portion for immediate funds. This can help you jumpstart a savings plan and then do some research to see how your government can additionally help you save for your retirement. In retirement planning, it is most important to remember that every bit helps, even if you can only afford to put away 10$ a month, it is better than zero.