Personal Succession & Retirement Planning
Personal Insured Annuity
An insured annuity provides retirement income with tax and estate planning advantages. With an insured annuity, you receive a steady stream of payments in return for a lump sum deposit. By insuring your annuity, an amount equal to your original deposit is issued to a named beneficiary or beneficiaries when you die.
Because only the interest portion of each income payment is taxable every year, you can maximize after-tax retirement income without increasing investment risk.
You can earn a pre-tax equivalent yield likely unattainable with today’s fixed income investments.
Because you have a lower amount of payable taxes, you increase your chances of securing government benefits.
If you’re a small business owner, by depositing a lump sum into an insured annuity with little or no cash value, you can reduce the overall value of your business and limit the capital gains liability.
Estate Planning Advantages
An amount equal to your original deposit is returned to your estate’s beneficiaries.
These proceeds avoid probate and can be issued directly to a beneficiary without cost or delay. An insured annuity is a long term commitment.
The decision to annuitize is permanent and cannot be reversed – it must be carefully considered.
Most annuities cannot be cashed or altered after income has commenced.
Payments cannot be adjusted to reflect changing needs.
Registered Retirement Savings Plan (RRSP)
An RRSP is a tax-sheltered savings plan that allows you to save money for retirement. At PlanWright, we can help you to grow your money through the use of mutual† or segregated funds. As the growth is sheltered, you will not pay taxes on it. When you contribute to an RRSP, the contributions are tax deductible and your taxable income will be reduced for that year. This will generate a refund for the taxes you had paid on the amount contributed. If you have been working and haven’t made use of RRSPs yet, you can use up previous years’ contribution room. Your annual contributions are based on your annual income, 18% of last year’s income or $25,370 (2016), whichever is greater.
Using these plans will deter you from using these funds when you are in a higher tax bracket. The purpose of these plans is to save for retirement and start to generate income from them when you are in a lower tax bracket, as the funds will be taxed when you withdraw them from the plan. The RRSP must be terminated by the end of the year that the individual turns 71. These individuals must change the plans over to a Registered Retirement Income Fund (RRIF), which has a minimum amount that you must withdraw each year. This may supplement other retirement funds, such as funds from a pension plan, Old Age Security, or CPP. Taxes will be paid on the withdrawn money from the RRIF, however, people are usually in a lower tax bracket at this age and will have to pay minimal taxes.
We offer RRSPs as well as Spousal RRSPs, in which the higher income earning spouse can contribute to their spouse’s plan.
RRSP Common Mistakes
No matter what the markets are doing, RRSPs are still one of the best ways you can save for long-term goals like retirement. So take full advantage of them and avoid making the following mistakes:
- Missing a contribution: Skipping just one annual contribution of $5,000 could reduce the value of your RRSP by almost $17,000 at the end of 25 years (assuming a 5% annual rate of return). So, it’s important to contribute every year to take advantage of tax-sheltered compounding growth.
- Indecision: If you’re rushing to meet the deadline, it is easy to make a bad investment choice or none at all. So make your RRSP contribution in cash. Then, later, when you’ve carefully evaluated your options, transfer your ‘parked’ money into an appropriate investment.
- Waiting until the last minute: Life is busy so you may end up scrambling to contribute just before the RRSP deadline. A smarter approach is to put your savings on autopilot and have smaller pre-authorized amounts deducted from your chequing account regularly throughout the year. You will get the advantage of dollar cost averaging, improve your chances of maxing out your RRSP every year and get the advantage of tax-deferred compound growth working for you earlier.
- Thinking only cash: If you do not have enough cash on hand to contribute then consider moving investments from your non-registered plans to your RRSP. This ‘in-kind’ contribution can be made with various investments deemed eligible. Remember, you will have to report any capital gains earned on your investments up to the date of the transfer.
Business Succession & Retirement Planning
Individual Pension Plan
Business owners, key executives and professionals with Professional Corporations face a problem most other employees do not. How can they build assets large enough to maintain the same lifestyle upon retirement when the rules governing Registered Retirement Savings Plans (RRSPs) and Registered Pension Plans (RPPs) severely restrict them? Business owners may have the additional problem of trying to move funds out of the business tax efficiently.
An IPP is a personal defined benefit pension plan with benefits taxed upon receipt by the member. The plan allows for the potential to accumulate a greater amount of assets than in an RRSP. Plan contributions are determined by an actuary to provide sufficient assets at retirement. Contributions are made by the plan sponsor (the company) and all expenses for setting up and funding the plan are deductible by the plan sponsor. The plan has full creditor protection and is governed by more prudent investment rules than an RRSP.
Executive / Owner Retirement Solutions
Some days, you feel that you never want to retire from your business. Other days…
Business owners and key employees face great challenges in planning for the future, both for the business and for their own retirement. PlanWright will work with you to develop a realistic feasible plan to satisfy both requirements.
Buy / Sell Agreement Funding Solutions
At PlanWright, we offer a vast array of Business Services to meet each client’s personal needs. Protecting your business is an essential part of preserving your estate. When an active shareholder in a business can no longer participate in the business, it’s important that the other shareholders have a plan in place to continue the business. A Buy-Sell agreement ensures that money is available to buy a deceased partner’s share of the business, using life insurance as the vehicle to fund this purchase.
Business partners want to ensure that if one partner dies, the other partners will be able to purchase the deceased partner’s shares from their heirs and continue the business without interruption.
Our Buy-Sell strategy involves a joint first-to-die insurance policy and a completed Buy-Sell agreement. A Buy-Sell agreement is like a “business will” and is a written legal document. Along with your advisor, a lawyer and accountant need to be part of the team when setting up the agreement.
People often delay buying life insurance, thinking that they can buy it later. Life insurance is medically and financially underwritten, which means that your eligibility to purchase life insurance along with the amount of protection you can purchase are based on your current health, medical history and ability to pay.
If your health deteriorates or as you age, you may find it difficult or expensive to purchase life insurance.
Key Person Insurance
Your business is likely to have at least one person who is key to its success. It could be the founder, the partner, the business expert, or the major shareholder. The death of that person could mean financial ruin for your business.
Key Person Insurance provides a financial benefit that will protect your business while it deals with the loss of your key person. You could use the proceeds to act on the terms of your Key Person Agreement (business succession), to recruit, hire, and train a replacement, and/or to ensure that the business stays viable in the interim. PlanWright offers a variety of Key Person Insurance products, and will work with you to determine the one that suits your business best.
Business owners who have children often consider transferring the business to one or more of them when they are ready to move on to other things or to retire. Planning such a transfer will help you ensure the continued success of your business. You will need to decide when the transfer should happen, taking into account how ready (competent) your child/children is/are, how well your staff is prepared to accept the transfer, and how you will set up the financial and legal aspects. Finally, you will need to decide when the time is right for you. Our PlanWright professionals will be able to guide you through this planning process so that you will be able to make the transfer successfully.
†Mutual funds and related financial planning services are offered through Credential Asset Management Inc.
PlanWright Financial is a wholly-owned subsidiary of Encompass Credit Union.