Should you ever think of retiring from your business, like many successful business owners, you may need help with retirement and tax planning matters. If your work activities consume much of your day, the transition from this busy and demanding working life into retirement can be a challenge.
Give some thought as to how you and your spouse will spend your time in retirement and develop a plan to ensure that your new life will be fulfilling. This doesn’t necessarily mean leisure and recreation. You could have an ongoing role in the business, become involved in a new one or work with a charity, with a non-profit organization or in the community.
Retirement planning requires you to consider a whole new lifestyle with new priorities and perspectives. A common misconception about retirement planning is the idea that money is the most important element and that you should focus your planning on creating after-tax cash flow. There are many other essential factors to consider.
Retirement planning requires you to consider a whole new lifestyle with new priorities and perspectives.
Build an estate plan
If your business interests represent a significant part of your estate, have you thought about how the transfer of this wealth will affect you, your family, your relationships and your personal legacy? Family members may have played different roles in the business. Consider these differences when planning your estate and deciding how you will treat active and non-active family members; for example, equal versus fair treatment. In considering what income you will need, remember to plan for unexpected events. Try to be proactive in planning for an unforeseen event, such as a health crisis, and do your planning well in advance of your potential retirement date. Ensure you review your Will and power of attorney/mandate on a regular basis so they continue to meet your estate planning objectives.
What are your plans after you exit your business?
As a business owner, the demands of running a successful business keep you very busy and engaged. Have you thought about how you want to spend your time after you retire? You may have a succession plan for your business, but do you have a plan to help ease the personal transition as well? It is a good idea to develop fulfilling new hobbies and interests while you’re still working. You have left your mark on a successful business. Now you have an opportunity to leave your mark on your community and other areas of interest that are important to you.
Discuss your personal goals with your family and friends if possible. Working together to plan for the next phase of your life can be beneficial for everyone. If you have a spouse who has not been involved in the business, their transition may be different from yours. Remember to include them and develop a post-retirement plan together. This should include fine-tuning your personal finances for the last few years before you retire to ensure you’re in good financial shape to proceed with your plans after you exit the business. Establishing clear personal goals will make this process simpler.
There are a number of financial factors to consider as you plan your retirement. Tax and estate planning should be ongoing considerations throughout your working life to ensure that your plan continues to reflect your changing circumstances and is still on track to help you achieve your retirement goals. As a business owner, however, in addition to assessing your sources of retirement income, you will need to review your succession plan periodically to ensure that the projected proceeds from the sale or transfer of your business will last as long as your retirement does. It can be difficult to replace an income stream in later years. Remember to factor in the effect of inflation and consider strategies that can increase the value of the funds you will receive from the sale, well before your planned retirement date.
What are your sources of retirement income and when will they be available?
It’s important to understand your sources of retirement income and how much recurring income will be produced by these and by existing income sources. These could include the CPP/QPP, OAS, RRSPs, proceeds from the sale of the business, income from an ongoing interest in the business, income from a new business, an IPP or an RCA.
Consider how to manage these sources of retirement income to maximize their efficiency. Where will you obtain funds if you have a cash flow shortfall? A common strategy is to withdraw funds from non-registered investments before redeeming funds held in tax-sheltered plans. This ensures you continue to defer paying tax on registered investments and preserves the power of tax-free compounding as long as possible.
Our team can help you decide how to draw on your various sources of retirement income in the most efficient manner to minimize tax, maximize flexibility and make the most of the available tax credits. They can also help you identify the issues that are relevant for your situation and keep your long-term financial plan on track.
Plan your retirement early
Will you need all the proceeds from the sale of the business to fund your retirement? Ensure your succession plan has taken this factor into account. How will you convert the funds received from the sale into an income stream so it’s available for you in retirement?
If you are transferring the business to family members, perhaps for little or no cost, your planning should incorporate this and ensure that either there will be sufficient income from the business to meet everyone’s needs or that other sources of income will be available.
At the Opheim Wealth Management Group
we can help you design your financial plan, maximize your after-tax income streams and help you estimate how much wealth you will need for retirement. This will also help you determine whether you will have any surplus and, if so, how much. If there is a significant surplus, we can help you plan the transfer of this wealth to your intended beneficiaries in the most appropriate and tax-efficient manner.