RETIREMENT PLANNING FOR THE SELF-EMPLOYED PROFESSIONAL OR BUSINESS OWNER

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RETIREMENT PLANNING FOR THE SELF-EMPLOYED
PROFESSIONAL OR BUSINESS OWNER
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Understanding the Market
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Hidden Cost of Business

• Business owners have sacrificed the steady income
  they could have received as an employee.
• They have missed the opportunity of a retirement
  company pension which they might have enjoyed as
  an employee.
• They have exposed all their personal holdings to
  the invasion of business creditors if things go
  wrong.
• They have assumed the risk, worry, and mental
  strain of making and keeping a business
  successful.
• They have spent money, time, and energy to create
  their business.
• Even today this business needs their continuous
  attention to produce a profit.

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THEY ARE THE BUSINESS
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Self-Employed Professional

• The self-employed professional has spent his
  career building up his practice, staying abreast
  of new and innovative procedures and theories.
• The success in increasing and keeping his
  clients is based on his knowledge, skills and
  client rapport.
• At retirement his business has an uncertain sale
  value.
• As professionals they do in most cases have
  support from their professional association in
  terms of benefits.
• Only recently and varying from province to
  province have they had the ability to
  incorporate.

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Reality Check What has Changed Today

• Business Owner
• Professional
• Consultant

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Breaking The Ice 5 Questions

• What is important about money to you and your
  family?
• What is it about (key word from question) that
  makes it so important?
• What are the best and worst financial decisions
  you ever made? What made them best and worst?
• What worry could keep you awake at night?
• How has your outlook changed over the past yrs?

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3 out of 4 Canadian small business owners have
not taken adequate steps to protect their
personal assets.
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10 Tips for the Business Owners

• 1- Consider incorporating.
• 2- Not all debt is created equal.
• 3- Ensure sufficient personal liability coverage.
• 4- Ensure spouse is outside reach of creditors.
• 5- Make use of spousal RRSPs.
• 6- Consider moving personal assets to spouses
  name.
• 7- Have adequate life insurance to preserve the
  business value, held personally with a family
  class beneficiary.
• 8- Place your retirement savings into an
  insurance product with family class beneficiary.
• 9- Get professional tax and legal advice.
• 10- Make a plan now.

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PRODUCTS

• DISCLAIMER The following information is being
  presented on the understanding that it is
  intended for seminar information only. The
  presenter is not recommending a specific company
  nor engaged for the purpose of providing legal,
  accounting, nor taxation advice.

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Individual Pension PlanIPP
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What is an IPP

• Registered Defined Benefit Pension Plan
• Subject to the provisions of the Income Tax Act
• Sponsored by and funded by the employer
• Comprised of 1 plan member however spouse may be
  added

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The IPP Candidate

• Individual business owner
• Professional of a professional corporation
• Executive of a private corporation
• Over age 40
• Already able to maximize RRSPs
• Earnings reported on a T4

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Features of the IPP

• Higher deductible contribution limits
• Contributions increase with age
• Creditor protection
• Contributions and fees deductible by employer
• Opportunity to fund for pre 2004 employment years
  to 1991

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2004 Contributions IPP vs RRSP
Age at plan entry in 2004 IPP Strategy RRSP Strategy IPP Advantage
40 67770 15500 52270
45 91600 15500 76100
50 117700 15500 102200
55 146370 15500 130870
60 177840 15500 162340
62 191360 15500 175860
65 203370 15500 187870
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IPP Contributions Next 5 years.
Contribution Year Age 45 in 2004
2005 18923
2006 20343
2007 21868
2008 23508
2009 25272
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At Retirement

• Life Income Fund (LIF)
• Locked-in Retirement Income Fund (LRIF)
• Annuitization
• Direct Payment of Pension

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On Death

• All assets of IPP available for transfer to
  spouse, another beneficiary, or estate of plan
  member

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On Termination Prior to Age 69

• LIRA

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Investment Options

• RRSP eligible investments

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Administration

• Mandatory funding
• Administration costs
• Accuarial costs including valuation every 3 years

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THE EXECUTIVE RETIREMENT ACCOUNT
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The Market

• Who can take advantage of the ERA concept?
• Business owner-managers
• Key employees
• Professionals of Prof Corp

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Executive Retirement Account (ERA)

• Share the benefits, not the ownership!
• Simple
• Effective
• Funded

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ERA

• Arrangement under which the costs and benefits of
  permanent life insurance policy are shared
• Employee is the only owner
• Employer is irrevocable beneficiary of the face
  amount

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ERA - The Concept
Agreement
Employer
Employee
Fund
C.O.I.
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Structure

• Owner-Manager buys UL policy and makes annual
  deposits to the fund
• Names company irrevocable beneficiary of face
  amount.
• Company pays COI
• Fund value grows tax deferred-available for
  retirement
• Face amount tax free to company at death

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ERA - The Concept
Agreement
Employee
Employer
Fund Value Tax-deferred Savings.
C.O.I.
Funds for Employer/CDA
Funds for Retirement
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Taxation Issues

• During Employment Are there taxable benefits for
  the employee?
• At RetirementEmployer agrees to the beneficiary
  change
• Tax issue for employer
• Potential taxable benefit to the employee
• Terms of Agreement

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Retirement Income

• How will you access money
• - Policy loans tax free to ACB
• - Policy withdrawals pro-rated
• - Bank loan tax free cash flow
• Legal Issues Must have employer/employee
  agreement

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Professional Small Business Owners Recent
Survey

• 3 out of 4 of Canadas small business owners have
  not taken adequate steps to protect personal
  assets from creditors.
• 79 of small business owners said they would be
  interested in an investment product which
  protected their mutual funds from creditors.
• 66 of this same group had never heard of
  segregated funds.

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Segregated FundsWho Can Benefit

• Business owners of any size
• Professionals from all fields
• Consultants and contractors

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Seg funds cont

• More choice, flexibility and security - for you
  and your clients.
• The growth potential of leading funds, plus
• The security of insurance

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All segregated funds offer

• Death benefit and maturity guarantees
• The ability to bypass probate
• Potential creditor protection

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Which Clients Can Benefit?

• Clients planning their estate
• Investors wary of market risk
• Professionals, entrepreneurs and business owners
• Clients wanting to leverage

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A Clear Solution for Entrepreneurs
I am self-employed or have my own business and I
am interested in an investment product that would
protect my mutual funds from creditors.
I know that theres an insurance product that
could protect my personal assets.
You can meet their need with potential creditor
protection. You can meet their need with
investment guarantees
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Are we as Financial Advisors being responsible by
not offering these products?

• Is it not to our advantage to have the basic
  understanding and application of as many
  solutions as there are retirement and estate
  questions.

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Summary

• Whether or not you actually offer any of the 3
  products introduced is not necessarily the goal
  of this presentation. This was strictly an
  introduction to the less conventional options
  available to the self employed and where they
  could be used effectively with specific
  individuals in retirement and estate planning.
• Thank-you