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Retirement Planning for the Business owner

I met with a new tax client the other day. I was shocked with the information he gave me. He and his wife had run their own company for over 30 years. They both had some CPP (not the maximum), old age security and a small amount of RRSP. Although they had no mortgage or other debts they would be living on less than $ 2,000 per month.

Is a prosperous retirement in store for you?

Without proper planning and preparation, you the small business owner might be faced with a grim retirement. Here is a roadmap which can lead you to a very prosperous retirement.

There are three things to being successful:

Make your business as profitable as soon as possible.
Surround yourself with a top notch professional team.
Begin building future streams of income.

Making your business profitable is a subject all its own and will require expertise and the assistance of your professional team. You should have at your disposal a great team of professionals including: an accountant, financial planner, banker, mortgage broker, real estate agent and lawyer.

Streams of Income:

Canada Pension Plan.
The Canada Pension Plan is a good investment and can provide a base stream of income in retirement. The business owner must ensure that he and his spouse have maximized their CPP earnings over as long a period of time as possible. You can contact CRA to find out the status of your CPP.

RRSP Strategy
Too many people look upon RRSP as a tax avoidance tool only. It can be effectively a large stream of pension income for the business owner. The investor must be very careful to protect the principal part of this investment. Using the services of a very good financial planner is critical to this strategy.

Investment Income
If possible the business owner should not stop at the RRSP investment level. Again, preserving the capital portion of an investment is important. On retirement the investment can be turned into an income fund and therefore another stream of income.

Passive income from Real Estate
By employing the services of a banker, mortgage broker and real estate professional it is possible to buy rental property with very little direct investment. The property can be revenue neutral and the renters are paying down the mortgage. When the mortgage is paid off the rent becomes monthly passive income. When appropriate this property can be sold but there might be some capital gains tax to pay

Profit from business
You have done a good job with your business and it is making money above your wages. This cash should be moved out of your operating company into a safer place. A good accountant can show you how to move this money to a holding company with no tax consequence and it can be safely invested to create a future stream of income.

Capital gains from sale of business
It is possible to set your company up so it can eventually be sold. This is a major project and will require the assistance of several good professionals. The capital gain on the sale of your business can pass to you tax free. This money can then be used to create another stream of income.

Other capital gains
As part of your retirement strategy you may be able to sell your home and downsize. This could create another tax free gain which again could be turned into another stream of income.

Create a flexible stream of income
If you have a talent or a hobby you may look at creating a situation where from time to time you can work on a part time basis and create a flexible stream of income. I have many retired professionals who continue to work as part time consultants to earn another stream of income.

It is the philosophy of creating streams of income from different areas which will ensure a prosperous retirement for the business owner. If any one stream runs dry then the others will still be there for retirement.