Don't derail your retirement
BUILDING A RETIREMENT PLAN CAN BE COMPLEX. STAY ON TRACK BY CORRECTING THESE COMMON MISCONCEPTIONS
You might have implemented a workplace savings plan to build a more attractive business for employees, but transitioning into retirement can be a lot more complex when you’re the owner. We spoke with Lisa Plater, a retirement counsellor at Kitchener-based Corporate Benefit Analysts, about owners’ common retirement misconceptions, and the solutions for correcting them.
Misconception: “My business plan is my retirement plan.”
The assumption is that you’ve created enough value in your business to fund a comfortable retirement. But, often, it’s not clearly indicated how that value will be extracted. Plater says it’s critical to integrate business, tax and personal financial plans as soon as possible, and to ensure personal needs, estate and wealth transition, risk management and exit planning are covered.
Misconception: “I know how much my business is worth.”
“Business owners are notoriously bad at valuing their own business,” says Plater. Businesses are only worth what a buyer is willing to pay—usually based on profit growth, margins and competitive advantage. Hire a qualified business evaluator to determine true value.
Misconception: “The cost of retirement is a simple calculation.”
To pin down which portion of your retirement will be supported by your business, you have to understand what retirement is going to cost. Financial planners often quote a ballpark percentage of your pre-retirement income. But, with more free time, you may spend more on hobbies and travel, for example, making it nearly impossible to reduce expenses. “Determine which spending is essential and which is discretionary, then make sure you’ve matched up your essential lifetime expenses with guaranteed sources of lifetime income,” says Plater. And understand that if you require a similar income to retire happily, you may not fall into a lower tax bracket.
Misconception: “Everything will go according to plan.”
Your plan will derive meaning from valuing your business properly and understanding tax structures. Plater says many retirees assume they will get the maximum CPP and OAS amounts, but that isn’t always the case. To build the retirement that’s worthy of all of your hard work, educate yourself before making decisions, plan for the unexpected to protect yourself, your family and your business, and work with a team of qualified professionals who can guide you along the way.
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