RRSPs can build wealth beyond your business
As an entrepreneur, you have a special opportunity to build up your net worth through your business. But that doesn't mean that you don't need a Registered Retirement Savings Plan (RRSP).
In fact, an RRSP is a key element of any business succession plan. Regular RRSP contributions provide a tax-effective way to diversify and build substantial retirement assets outside the business.
Diversification is as important for business owners as it is for other investors. Entrepreneurs often face greater risks and financial uncertainty than salaried employees.
Relying on your business for retirement income can be risky. What if your business sells for less than you expect? Or if the business remains in the family, how would a decrease in profitability affect your retirement? If the business can't provide the income you need, your retirement lifestyle could be at risk.
By building a secure pension through your RRSP and other retirement assets, you can spread the risk and make your retirement income more reliable.
A substantial RRSP nest egg also gives you strength when dealing with prospective buyers. You could be in a better position to wait for the right buyer or hold out for the right price.
The key is to establish and maintain a regular investment program to build up your RRSP. In good times, maximize your contributions and catch up on unused contribution room by putting aside as much cash as you can afford.
Professional advice can help you create a solid retirement savings plan, so you don't rely solely on your business.