Ensuring a comfortable retirement that maintains one’s pre-retirement standard of living is a common goal. For high net worth individuals, traditional options like RRSPs and pensions often fall short in providing the full income needed. Fortunately, there are several executive retirement solutions specifically designed to bridge this gap and secure a robust retirement income.
Are You on Track to Properly Fund Your Retirement?
Imagine this: You’ve worked tirelessly for years, building a life of financial strength and security for yourself and your loved ones. You’ve maximized your annual RRSP contributions, made savvy investments in your non-registered portfolio, and now, the golden years of retirement are on the horizon. But a lingering question remains: Are you truly on track to fulfill your retirement dreams?
Many financial experts advocate for the “70% rule,” suggesting that you will need approximately 70% of your annual pre-retirement income each year to live comfortably during retirement. Picture yourself enjoying the fruits of your labor, but also consider the reality that people today are living longer and often aspire to retire earlier. This means your retirement plan needs to be more robust than ever.
How Do I Meet My Retirement Goals?
As a successful Canadian business owner, you’ve mastered the art of negotiation and cash flow management. Yet, when it comes to tax-efficient compensation arrangements, you might find yourself navigating uncharted waters. Imagine earning $250,000 annually before retirement and aspiring to maintain a comfortable lifestyle with $175,000 in annual retirement income. Relying solely on an RRSP is unlikely to meet this objective. While non-registered investments can support your desired retirement lifestyle, specially designed, tax-advantaged plans can be far more effective. Consider these actionable executive retirement solutions:
- Individual Pension Plan (IPP): Picture a registered plan that not only offers tax-deferred growth but also replaces your RRSP and guarantees a fixed pension amount. An IPP can provide the stability and predictability you need for a secure retirement.
- Retirement Compensation Arrangement (RCA): Think of a non-registered plan that supplements your RRSP and pension, ensuring a total annual amount equalling 70% of your pre-retirement income. An RCA can bridge the gap and help you achieve your retirement goals.
- Insured Retirement Plans: Envision a tax-advantaged plan that leverages the tax-deferred growth in a permanent life insurance policy to trigger a series of tax-free loans during retirement. This innovative approach can provide you with the financial flexibility you desire.
By incorporating these executive retirement solutions, you can confidently work towards meeting your retirement goals and securing a financially stable future. Take action now to explore these options and ensure your retirement plan is as robust as your business strategy.
Which Executive Retirement Solution Should I Use?
As a high net worth Canadian business owner, choosing the right executive retirement solution can feel overwhelming. The decision often comes down to personal preference and your unique financial situation and goals. Let’s explore some options to help you make an informed choice.
For many, an RRSP serves as a basic option for retirement savings. However, if you’re looking for more sophisticated solutions tailored to your specific circumstances, consider these alternatives:
Imagine you value the certainty of a predetermined pension amount. In this case, an Individual Pension Plan (IPP) might be the perfect fit. As a defined benefit plan, an IPP provides a guaranteed fixed pension amount upon retirement. Contributions are calculated by an actuary to ensure that the promised retirement benefits can be paid out, offering you peace of mind and financial security. This option is particularly beneficial if your corporation is organized in a way that supports such a plan and if you receive T4 income.
Alternatively, if you’re looking to create a legacy for your children while planning for your retirement, consider an Insured Retirement Plan (IRP). This tax-advantaged plan leverages the growth in a permanent life insurance policy to trigger tax-free loans during retirement, allowing you to achieve multiple objectives with one policy. This can be especially advantageous if you have significant earnings and are looking for a way to efficiently manage your wealth.
A Retirement Compensation Arrangement (RCA) can supplement your RRSP and pension, ensuring a total annual amount equalling 70% of your pre-retirement income. This plan can bridge the gap and help you achieve your retirement goals. RCAs are particularly useful if you receive T5 income or if your corporation’s structure supports such arrangements.
It’s also worth noting that in some cases, using both an IPP and an RCA can be beneficial.
Your Thorough Wealth Consultant can illustrate how different solutions compare in meeting your retirement income objectives. They will also guide you through the set-up procedures and costs involved, especially for IPPs and RCAs.
Ultimately, this isn’t a decision you need to make alone. Your Thorough Wealth Consultant will consult with you and your professional advisors, including your lawyer and accountant, to recommend the best executive retirement solution for your needs.