With plenty of uncertainty in the marketplace these days, from everything like housing to oil, it’s become all the more imperative for small business owners to prepare for retirement, a senior wealth advisor said in an interview with WP.
Paul Shelestowsky, a senior wealth adviser with the Meridian Credit Union, said that small business owners will have to get creative and look for new ways to face their challenges, one of which he says is investing your dollars in a holding company.
“A holding company is a better alternative than investing in RSPs, which come from T4 Income,” said Shelestowsky. “You get to a certain age where you have to take out the money and they tax you heavily once you do, and if you’re still running a business past the age of 71, which a lot of my clients are, it’s not the best option for you.”
“It’s better be in control of your own destiny and putting your funds into a holding company can be a good move because you can control when its release. There is a downside in that taxes can be as high as 46 per cent, but I try to make as much in capital gains and use corporate class mutual funds, which drops the rate in half at 23 per cent.”
Shelestowsky made the comments just a week after the overnight interest rate cut and Wednesday’s activity in the banking sector as RBC Canada, BMO and other major banks dropped their prime lending rate from three per cent, down to 2.85 per cent.
What’s more, with the falling prices of oil, a low dollar which is affecting snowbirds and their investments in the States as well as the housing market being “overvalued”, advisors are faced with more challenges than ever to get people thinking about their longevity post-retirement.
According to the Canadian Federation of Independent Business (CFIB), more than three-quarters of small business owners don’t have sufficient retirement plans in place for themselves or their employees.
This is a scary figure – 75 per cent – considering that a majority of small business owners are over the age of 40, according to Industry Canada statistics.
However despite a plethora of challenges and speculation ahead, Shelestowsky said there’s a lot of celebrate when it comes to an interest rate cut.
“I’m actually quite happy about it. Some of my clients want to explore other investment avenues, say a farm or a winery, and the interest rate cut helps their ability to consider those options.”
Another one of the things you can do, and that this advisor recommends for others to consider, is a succession plan.
It’s a natural move to make, said Shelestowsky, because at some point owners will have to step aside. Who’s going to take over? Who’s going to run the business while you’re retired and alive?
“I’ve had clients who work until they can’t work anymore and even when they hand it off to a family member or lose friend, they’re still involved in some way,” he said. “For people that don’t have this, it’s important to make sure ensure one’s financial and retirement plans aren’t affected.”