Retirement goals

Financial planning tips for retiring business owners.

For many business owners, their business is their main retirement asset.

However, you may have other plans for your business, such as passing it onto a family member. Or perhaps you will need assets above and beyond your business to fund your desired retirement lifestyle.

Whatever your situation, it makes sense to ensure that you will have enough to fund your retirement, whether it’s from selling your business, drawing income from other sources such as your registered plans, or receiving an inheritance.

A comprehensive financial plan can help you determine if you will have sufficient funding for retirement, and if not, recommend the steps you need to take to ensure that you will. It’s especially important given the new challenges that retirees now face, including low interest rates, high taxes and inflation.

New retirement income challenges – In the past, you could simply put your retirement savings in guaranteed investments like GICs and bonds, confident that the interest payments would fund your golden years. But several factors have combined to make this strategy unfeasible for most retirees.

First, people are living longer after they retire. Thirty years ago, people generally only lived for a few years after retiring at age 65. But now, people on average can expect to live nearly 19 years after retirement at age 65, meaning their retirement nest eggs will need to last that much longer.

Retirees are also living healthier, more active lifestyles, which tend to cost more than simply sitting on the front porch in a rocking chair. Today’s retiree also expects a higher standard of living. They want to enjoy the good life, which also comes with a financial cost.

With these two demographic trends – longer life spans and higher lifestyle expectations – it is becoming increasingly difficult to generate a sufficient income from the traditional interest-bearing investments, such as GICs and bonds. As of mid-2007, interest rates have remained at historic lows. Furthermore, interest income is fully taxable at your marginal tax rate, unlike many other types of investment income. And inflation erodes what little purchasing power you have left.

Most people approaching retirement share these same challenges, regardless of whether or not they own a business. But if you are a business owner, you have the added challenge of figuring out what to do with your business when you retire. Do you plan to sell it? If so, how much will it be worth when you retire, and will that be sufficient to fund your retirement? What are the best strategies for selling your business?

Or do you plan to pass on your business to family members, and draw on other income sources? If so, do you have enough? What strategies can you use to maximize your retirement income?

A plan for you, and your business – When the time is right for you to transition from your successful business to the retirement of your dreams, there are a number of issues you need to consider. A comprehensive plan can help you with:

Transitioning your business – protecting your income stream.

Effective cash management – giving you the time you need to weigh your long-term investment options.

Investment options and advice – to help you choose a solution that fits your new lifestyle and protects your wealth.

Tax strategies – that maximize the after-tax sale revenue to give you more options in the future.

Kirbey Lockart is an investment advisor with RBC Dominion Securities. This article is provided for information purposes only. Please consult with a professional advisor before implementing a strategy.