What you can do as a business owner to proactively plan for retirement

Part 2: Cash Flow & Tax Minimization

In our second installment, Tax Advisor Mary Ann Donahoe covers the ins-and-outs of maximizing disposable income and minimizing taxes in your golden years.

In our first installment of this series we discussed one of the most important, and often difficult, aspects of retirement planning as a business owner: deciding who will take over your business and how the transition process will play out. Assuming you’ve put some thought into this area, another question that most small business owners have leading up to retirement is, ‘Will I have enough cash flow to maintain my current lifestyle?’ Well, planning is the key to ensuring the answer to this is a resounding ‘Yes’.

The first part of the retirement cash flow planning process is figuring out how much after-tax cash you will require to maintain your current lifestyle or your ideal retirement lifestyle. The second step is to determine how best to access the various sources of funds you have accumulated over your lifetime.

There are a number of possibilities in terms of retirement cash flow funds that you may have accumulated, including Canada Pension, Old Age Security, company pensions, RRSP’s, investment portfolios, real estate, savings or GIC’s, retirement insurance plans, or a holding company that holds your excess business funds.

Each situation is unique when reviewing your estate plan and determining the best options, depending on the mix of taxable and non-taxable investments, how liquid they are (how quickly you can get the cash), the timing of withdrawals and current and future tax implications to name a few. What we aim for at MRSB in meeting clients’ cash flow needs is an optimal mix of taxable and non-taxable investments, keeping in mind tax minimization and estate planning.  

To give you an example, below is a plan for a fictional couple, Mr. and Mrs. Jones. Mr. Jones is 55 and Mrs. Jones is 53. They plan to retire in nine years but will start their Canada Pension when they each turn 60. Upon retiring they will sell their business for $400,000, will have a holding company worth about $350,000 and will also have a shareholder loan of $300,000. As you can see by examining the various columns below, this plan allows for a comfortable retirement income of about $100,000 per year after tax.

Each Comprehensive Review & Tax Planning (CRTP) plan is highly tailored to the individual and we work with clients to first determine your goals, then develop the steps to achieve them. So plan ahead and get started now to develop your retirement plan. It's never too early, and your 65 year-old self will thank you!