If you are relying on the value of your business to fund all or a major part of your retirement income, your business succession plan must include an assessment of what your retirement income needs will be, the steps that are needed to help ensure your retirement capital is protected and the strategy to unlock the value of your business to meet your retirement income needs.
Addressing these retirement issues well in advance of your expected departure from the business will help ensure you have the retirement income and security you need in your post-business years.
Income Strategies For Retirement
These include the following:
Retirement Plan Alternatives
Registered Retirement Savings Plan(RRSP) or a Company Registered Pension Plan (RPP) is a choice that could be made that will make provision for your retirement.
Retirement Compensation Arrangement (RCA)
This is a plan or an arrangement under which an employer makes contributions to custodian who holds the funds in trust. The funds are eventually distributed to the beneficiary (employee) on retirement, the loss of employment or substantial change in the services of the employee.
Individual Pension Plan (IPP)
For individuals over age 40, a large contribution can be made to an individual pension plan in addition to company retirement pension plan.
As a shareholder, you can receive dividends based on the profits of the company. It is advisable to reorganize the company’s shares so that you own a different class of shares from the other shareholders.
This allows a different dividend to be allocated to each class of shares.
Serial Share Redemption
Your company could buy back a portion of your shares each year. This is called share redemption. This is done together with an estate freeze. It converts common shares to fixed valued preferred shares.
The new owners of the business will subscribe for new shares to share in the future growth of the company. The prefer shares may include provisions for dividends and multiple voting rights.