Retirement Strategies for Canadian Business Owners: What You Need to Know

For most Canadian business owners, preparing for retirement isn’t as simple as contributing to an RRSP and calling it a day. Your business is more than a job: it’s an asset, a legacy, and often the biggest piece of your financial puzzle. However, unlike employees with a defined-benefit pension or employer-sponsored plans, entrepreneurs must take charge of every step of their retirement journey.

Here, we’ve gathered some tips to consider as you plan to retire as a business owner.

Don’t Count on Selling Your Business to Fund Retirement

Some business owners may assume that they’ll sell their business and live off the proceeds in retirement, but many unknown factors contribute to this decision. The market may not cooperate, some businesses may not sell at all, and others fetch far less than expected. Even if a sale goes through, it can take years to close and receive full payment.

Instead, you may want to think of your business as an illiquid asset. Relying on it as your primary retirement plan is a gamble, so a better plan may be to start diversifying long before your exit.

Pay Yourself Strategically

As a business owner, how you pay yourself has big implications for retirement.

For example, let’s look at the difference between a salary and dividends. A salary creates RRSP room and CPP contributions, while dividends don’t. A blend of the two can offer balance in terms of how you generate retirement income.

Another tip is to invest outside of your company. This helps prevent you from trapping all your wealth in corporate accounts and encourages you to build personal savings you can access post-retirement.

Talk to an accountant or tax advisor to find the optimal mix for your goals.

Use Your Corporation as a Tax Shelter

Your corporation can be a powerful retirement tool because if you’ve accumulated profits, you can invest those funds within the company and defer personal taxes until withdrawal.¹

But this comes with rules:

Passive income penalties kick in once you exceed $50,000 in annual investment income.²
Investment choices within a corporation require careful planning to avoid tax drag.

Consider a holding company structure to separate investments from operating risk and work with a tax pro to keep things compliant.

Explore an Individual Pension Plan (IPP)

An IPP is a defined-benefit pension plan set up for an owner or key employee of an incorporated business.³ It allows for larger, tax-deductible contributions than an RRSP, which is especially valuable if you're 40 or older and have a high T4 income.

IPPs also offer creditor protection and stable retirement income, and they may allow you to “top up” past service years retroactively. They’re more complex to administer but can be a smart tool for high-income entrepreneurs looking for tax-efficient retirement income.

Have a Succession Plan

Too many Canadian business owners delay organizing for succession until it’s too late. Start early and ask the hard questions, such as:

Do you want to pass the business to your family?
Can someone inside the company take over?
Will you sell to a third party, or just shut it down?

Each path has different tax consequences, legal considerations, and timelines. A good succession plan takes years to implement properly, so the earlier you build your succession plan for retirement, the better.

Prepare for the Lifestyle Shift

Retirement isn’t just a financial transition; it’s also a psychological one. Entrepreneurs often struggle with the identity shift of no longer running a business.

Start thinking about what retirement looks like for you. Will you consult or mentor? Will you volunteer or travel? What gives you purpose when work no longer defines you?

Retirement preparation for Canadian business owners is a little more involved, but with the right strategies, you can turn your business's success into long-term financial freedom.

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This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Ivy Pierson, CEP, MBA Investment Advisor Representative Securities and advisory services offered through Cetera Advisors LLC (doing insurance business in CA as CFGA Insurance Agency LLC), member FINRA/SIPC, a broker/dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity. Pierson Wealth Management is located at 28368 Constellation Rd., Ste. 396, Santa Clarita, CA 91355. CA Insurance Lic#0C92500. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful