Retirement is approaching… What will you do: live abroad, travel, sell your business, continue to work part time? Will you have enough money to maintain your lifestyle? How will your family be impacted? Have you considered the tax aspects? These are just some of the points to consider when planning for this important stage of your life.
Identify your needs
You have to think about protecting your assets and, of course, obtaining coverage for long-term care, prescription drugs, etc.
Understand the risks
The key is to make sure you have sufficient coverage, from both a personal and a professional standpoint, in terms of life insurance, disability insurance, prescription drug insurance, and property insurance.
Risk, frequency and seriousness
When identifying your needs, the types of risks are a decisive factor. Insurers assess the benefits required to maintain your standard of living and that of your dependents or your partners, as well as the benefits required to pay off your creditors.
Managing the risks
Your insurance portfolio should be reviewed regularly. It is an integral part of a sound personal financial plan.
When to buy?
These major life events are generally a good time to consider insurance:
- Birth of a child or grandchildren
- Marriage or divorce
- Death of a parent or a spouse
- Children leaving home to study or to start a family
- Purchase of a home or a cottage
- New job or business start-up
These are opportunities to review your insurance needs and, above all, to make sure these needs are fully covered.
Transferring your investments
Receiving the OAS
The Old Age Security (OAS) pension is paid at age 65 to all Canadian citizens. The monthly benefits total $7,717.40 per year. However, if your income was higher than $77,580 in 2019, your pension could be reduced. The OAS pension is reduced to $0 when your taxable income is more than $125,696.
A transfer to consider
This tax strategy can be advantageous for many reasons, enabling you to:
- Benefit from the Old Age Security (OAS) pension
- Opt for the corporate tax rate of 50.47% versus the personal tax rate of 53.31%
- Obtain certain tax credits: person living alone, age amount, home-support services for seniors, etc.
- Split your income
Here is an example to help you better understand the impact of transferring your investments to your corporation. Let’s assume that you have the following retirement income and that you are 71 years old:
|Scenario||Without transfer||With transfer|
|Income source||Amount received||Amount received|
|Québec Pension Plan (QPP)||$13,300||$13,300|
|Minimum RRIF amount||$62,400||$62,400|
|Taxable investment income||$50,000||$00.00|
|Total taxable income||$125,700||$75,700|
|Total taxable amount||$125,700||$82,917|
Selling my business
First, you have to decide when you want to sell. At age 60 or 65? One year from now, or two, or perhaps three? Or further down the road? This decision is key in terms of planning this major transaction.
Selling your business will have tax consequences. You will have to declare any capital gain realized at the time of sale. Depending on the situation, your financial advisor may, for example, recommend different measures to defer a part of the gain or to obtain a deduction in case of a loss.
The right questions
Your professional reality
Have you found someone to take over your practice? Are you considering a gradual retirement? Are you a partner or a sole proprietor? Do you have several employees? Do you lease your office or do you own the building housing your practice? Are you selling to a family member? The answers to these questions will help determine the objectives of the sale and how you go about it.
Preparing the sale
Leave nothing to chance! Surround yourself with a team of professionals who understand your needs and who have the requisite expertise. You will require the services of:
- financial planners
- lawyers, notary
- appraisers (specialized firms)
Sale of shares or sale of assets?
What are the conditions of the sale? With or without a service contract? This must be taken into account in setting the selling price. You must also consider the tax aspects, according to the type of transaction. Depending on your status (incorporated or not), the allocation of the price can have substantial impacts, as can the terms of the transaction.
If the buyer is a member of your family, special tax measures apply, since it is a transaction between related persons. For example, you could lose certain benefits such as the capital gains deduction. A thorough analysis is a must. A financial advisor can help you make sense of it all.
You have in hand all the buyer’s documents, and all the conditions of sale have been met. Now you have to organize and plan the transition. This involves a number of steps.
Among the key tasks, you will have to:
- Prepare a complete inventory of supplies, equipment, etc.
- Draw up a complete patient list.
- Organize the accounting.
- Accept the final projects of all contracts.
- Give notices and/or records of employment and T4 slips to your employees.
- Pay salaries and vacation pay.
It’s you who decides!
When you make a will, you yourself decide who your heirs will be and what share each will receive.
There are four types of wills
- Contractual institution
This is a clause that may be included in your marriage contract or civil union contract, also known as a “property goes to the last surviving person” clause. The marriage contract or civil union contract is therefore recognized as a will unless another notarial document revokes this clause.
- Notarial will
This will is prepared by a notary and signed before the notary and a witness.
- Will made in the presence of witnesses
Any person may write this type of will, but it must be signed by the testator and two witnesses. Note that if a legacy is made to a witness, it is without effect.
- Holograph will
This will must be entirely handwritten and signed by the testator.
It is important to note that no notarial will, will made in the presence of witnesses or holograph will can be made jointly.
The best choice
Among these options, it is generally recommended to choose a notarial will, for several reasons.
- You benefit from the expertise of a specialist in the field: your notary.
- You estate will be settled more quickly, because this type of will does not have to be probated by the court or by a notary to be executory.
- The original is kept in a safe place by the notary so it cannot be lost or damaged.
Your notary may recommend that you include clauses to better protect your family members (appointment of a tutor to your minor children, disposition of life insurance proceeds, conditions for delivery of property to your heirs, etc.).
My decumulation plan
Many points should be considered before you start withdrawing funds:
- The tax impact
- Major expenses (e.g. car purchase, home repairs)
- The state of your investment portfolio
- The possibility of receiving the Old Age Security (OAS) Pension.
It is therefore important to have a structured plan to make the right choices.
Plan your expenses
Home repairs, buying a new car, or carrying out a special project are some of the major expenses you have to plan for. Withdraw the necessary funds in advance, little by little. A single big withdrawal to cover these expenses could be very costly in terms of taxes and could destabilize your investment portfolio.
A balanced portfolio
Many things affect the performance of your portfolio. The two key factors are:
- Your asset allocation. This is the factor that has the greatest long-term impact on the stability of your returns.
- Diversification of your assets.
These two factors determine your portfolio’s capacity to weather market fluctuations. It’s essential, therefore, to have a personalized asset allocation plan. Aim for above-median performance and avoid changing your plan for emotional reasons.
Make your life easier!
Tax rules change, as do your needs. Review your plan once a year to make sure it’s still appropriate. Our wealth management advisors can help you prolong and optimize the total decumulation of your assets.
Have you made good progress in your plan?
Which steps have been completed?
Plan de sale of my business
Make the calculations concerning the investments in my corporation
Make or update my will
Prepare my decumulation plan
The Financial offers you a turnkey solution by giving you access to all the resources you need and by helping you make the best choices.
Beyond taxation, master this new stage of your life by participating in customized conferences organized each year by Professionals’ Financial. Register for our Retirement Experience Weekend, a series of dynamic workshops that deal with the realities of professionals and that focus on different aspects of retirement (psychological, social, taxation, investment, insurance, etc.).
You never know what the future holds…
Don’t take risks. Make arrangements now so that your loved ones will be well protected if some misfortune befalls you. For more information on wills and protection mandates, or to obtain the help of an expert to prepare these documents, place your trust in one of our advisors.