Several recent surveys by banks and other financial entities have revealed that almost three-quarters of Canadian farm families and small business owners have saved less than $100,000 in savings to carry them through their retirement years. Just 10% said they had saved more than $500,000.
This would indicate that many farmers and small business owners are woefully under-prepared financially for retirement. Some good news though is that there is a marked improvement in the amount that small business owners aged of 25 and 45 had saved.
In my discussions with a wide range of farmers and business owners, a common attitude is that a farm or small business is something you pour money into with the hope that one day you can sell it and end up with enough money to retire on. Hence the saying, asset rich and cash poor! However I believe that this approach is outdated.
What’s the reasonable dollar value needed? Based on someone retiring at 65, advisors agree that a reasonable amount required today to fund a comfortable retirement to age 90 is in excess of $1 million.
So when can you afford to retire? I know from experience that retirement dates can vary for business owners or farmers depending on their personal and business situation. Here’s where working with a financial advisor can help determine the shortfall in a retirement fund based on how much they’ve saving each year. Most farmers and small businesspeople have their own vision of what retirement means to them, and that may mean working longer to achieve that goal.
The importance of diversification: All too often I find that farmers and small business owners hold their savings in low return GICs. And about half are not taking advantage of investment opportunities such as TFSAs at all. I believe that investing a certain portion of retirement investments outside the business is an important strategy to diversify risk and optimise growth.
Who are they planning to leave the business to? Recent surveys seem to indicate the most popular option for just over a third of respondents was selling to a buyer outside of their family. That was followed by 15% who said they would transfer their farm or small business at no cost to a family member. About 10% said they would wind down and close the business and 4% would sell to a family member. Fully one-third were unsure of what they would do.
Adding to the stress are all of the emotional issues that come into play. Accepting the eventual sale of one’s farm or small business can be tough, especially for owners who have invested so much time, effort and money into building their farm or business!
If this is a concern for your farm or small business in the near future, I recommend talking to a trusted financial professional who works with a team that includes accountants, lawyers and other specialists. This will help you to discover solutions that will help ensure that your business is left in the right hands, for a fair price, and that will fund a comfortable and worry-free retirement.
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