If you should ever think of retiring from your business, like many successful business owners, you may need help with tax, retirement and estate planning matters.
Here are some helpful tips:
Build an estate plan – Have you thought about how the transfer of business interests will affect you, your family, your relationships and your personal legacy? Consider the differing roles, whether active or non-active, of family members when planning your estate and deciding how you will treat them. Try to be proactive, rather than reactive in planning for an unforeseen event, such as a health crisis, and do your planning well in advance of your potential retirement date.
Stay active in retirement – Have you thought about how you want to spend your time after you retire? 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. 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.
Financial considerations – Tax and estate planning should be ongoing considerations throughout your working life to ensure that your plan continues to reflect your changing circumstances, and to ensure it helps you achieve your retirement goals. As a business owner, in addition to assessing your sources of retirement income, you will also 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.
Sources of retirement income – It is important to understand your sources of retirement income and how much recurring income will be produced by these and by existing income sources. Consider how to manage these sources to maximize their efficiency.
Where will you obtain funds if you have a cash flow shortfall? The general rule 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.
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 the need to ensure that there will either be sufficient income from the business to fill everyone’s needs, or that other sources of income will be available.
Kirbey Lockhart is an investment advisor with RBC Dominion Securities. This article is provided for information purposes only. Consult with a professional advisor before implementing a strategy.
