By Jeanne Stapleton, Financial Wellness Specialist
Scenario: It’s your 65th birthday! Your many friends, family, and business associates have thrown you a big surprise party! As you circulate through the partygoers, you are constantly asked when you are going to retire and what you plan to do in retirement. What do you want to be able to say?
Retirement planning is a process that should be started on the day you start earning income, and if not, as soon as possible following that day. Why? Just as every successful business has a business plan, your retirement will only be a happy and successful one with planning.
According to a poll by CIBC in 2018, 43% of women over 55 do not have a retirement plan. According to an HSBC 2018 retirement report, 51% of working women haven’t started saving for retirement or don’t know how much they need to save. Yet, according to the CIBC 2018 poll, most Canadians feel that they will need about $756,000 to retire. That would be about $30,000 per year without any consideration for inflation and assuming you only need to fund 25 years. (1) What is your number?
Basic retirement planning answers these questions:
When would you prefer to retire? Remember that it is not always an option, so be prepared.
What do you plan to do with your business? Is there a succession plan, or will you sell or close the business?
What lifestyle would you like to have in retirement? What is the associated cost?
What financial resources, in addition to your business, do you have in place for retirement? Remember to factor in your increasing medical costs and your tax obligations.
Do you plan to leave an inheritance to your family or money to a charity?
How do you allocate limited dollars for the future, when your business needs cash today?
The old adage always works when it comes to personal finance – pay yourself first. Yes, even when your business income is not consistent! And even when you are trying to grow your business. When you do have income, pay your future self first. Set up your own personal pension plan and have 10–20% of your income diverted into a savings pot for retirement. The reason government employees have good pensions is that in addition to the top-up, they are forced to save from every paycheck!
Why wouldn’t I consider my business my retirement fund?
Diversification (i.e., not having all your eggs in one basket): while the majority of your energy and money will go into your own business, putting money into other types of investment options (stocks, bonds, mutual funds, segregated funds, property) will help offset any downturns your business may go through, such as when, through no fault of your own, because of a technological innovation, your business is no longer viable in five years’ time. If all your money is in this business, what will you retire on?
Why not eliminate a significant amount of your stress about retirement by taking the first step in the process today? Identify how much you will need for your preferred retirement lifestyle, assuming you live for 30 years in retirement. If you are unsure about how to figure that out, then reach out to your financial planner. They can walk you through all your considerations and help identify the most tax-efficient ways to invest for your unique situation.
(1) 2018 CIBC Retirement Savings Poll
Financial Wellness Specialist
Jeanne’s current mission in life is to bring financial wellness to every Newfoundland family. A personal finance professional for over seven years, she focuses on increasing her clients’ bottom line through better cash-flow management, investments, and efficient insurance programs. A native of Labrador City and a graduate of Carleton University (political science and law) and of Dalhousie University (MBA), Jeanne continues to add value to her clients by working toward her Certified Financial Planner® accreditation. When she is not helping her clients build a better financial future, she can be found playing with her two daughters or fulfilling her role as President of the NLOWE Board of Directors.