RETIREMENT PLANNING FOR THE SELF-EMPLOYED PROFESSIONAL OR BUSINESS OWNER
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Transcript of RETIREMENT PLANNING FOR THE SELF-EMPLOYED PROFESSIONAL OR BUSINESS OWNER
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RETIREMENT PLANNING RETIREMENT PLANNING FOR THE SELF-EMPLOYED FOR THE SELF-EMPLOYED
PROFESSIONAL OR PROFESSIONAL OR BUSINESS OWNERBUSINESS OWNER
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Understanding the MarketUnderstanding the Market
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Hidden Cost of BusinessHidden 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 BUSINESSTHEY ARE THE BUSINESS
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Self-Employed ProfessionalSelf-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 Reality Check – What has Changed TodayChanged Today
Business OwnerProfessionalConsultant
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Breaking The Ice Breaking The Ice 5 Questions5 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 3 out of 4 Canadian small business owners have not business owners have not taken adequate steps to taken adequate steps to
protect their personal assets.protect their personal assets.
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10 Tips for the Business Owners10 Tips for the Business Owners1- 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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PRODUCTSPRODUCTS
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 PlanIndividual Pension Plan
IPPIPP
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What is an IPPWhat is an IPP
Registered Defined Benefit Pension PlanSubject to the provisions of the Income Tax
ActSponsored by and funded by the employerComprised of 1 plan member however
spouse may be added
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The IPP CandidateThe IPP Candidate
Individual business ownerProfessional of a professional corporationExecutive of a private corporationOver age 40Already able to maximize RRSPsEarnings reported on a T4
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Features of the IPPFeatures of the IPP
Higher deductible contribution limitsContributions increase with ageCreditor protectionContributions and fees deductible by
employerOpportunity to fund for pre 2004
employment years to 1991
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2004 Contributions 2004 Contributions IPP vs RRSPIPP vs RRSP
Age at plan entry in 2004
IPPStrategy
RRSPStrategy
IPPAdvantage
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 IPP Contributions – Next 5 years.years.
Contribution Year Age 45 in 2004
2005 $ 18923
2006 $ 20343
2007 $ 21868
2008 $ 23508
2009 $ 25272
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At RetirementAt Retirement
Life Income Fund (LIF)Locked-in Retirement Income Fund (LRIF)AnnuitizationDirect Payment of Pension
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On DeathOn 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 On Termination Prior to Age 6969
LIRA
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Investment OptionsInvestment Options
RRSP eligible investments
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AdministrationAdministration
Mandatory fundingAdministration costsAccuarial costs including valuation every 3
years
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THE EXECUTIVE THE EXECUTIVE RETIREMENT ACCOUNTRETIREMENT ACCOUNT
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The MarketThe 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)Executive Retirement Account (ERA)
Share the benefits, not the ownership!
SimpleEffectiveFunded
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ERAERA
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 ConceptERA - The Concept
C.O.I. Fund
Employer EmployeeAgreement
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StructureStructureOwner-Manager buys UL policy and makes
annual deposits to the fundNames company irrevocable beneficiary of
face amount.Company pays COIFund value grows tax deferred-available for
retirementFace amount tax free to company at death
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ERA - The ConceptERA - The Concept
C.O.I.Fund Value
Tax-deferred Savings.
Employer EmployeeAgreement
Funds forEmployer/CDA
Funds for Retirement
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Taxation IssuesTaxation Issues
During Employment: Are there taxable benefits for the employee?
At Retirement:Employer agrees to the beneficiary change
Tax issue for employer Potential taxable benefit to the employee
Terms of Agreement
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Retirement IncomeRetirement Income
How will you access money: - Policy loans – tax free to ACB - Policy withdrawals – pro-rated - Bank loan – tax free cash flowLegal Issues – Must have
employer/employee agreement
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Professional & Small Professional & Small Business Owners – Recent Business Owners – Recent
SurveySurvey 3 out of 4 of Canada’s 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 FundsSegregated Funds
Who Can BenefitWho Can Benefit
Business owners of any sizeProfessionals from all fieldsConsultants and contractors
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Seg funds con’tSeg funds con’t
More choice, flexibility and security - for you and your clients.
The growth potential of leading funds, plusThe security of insurance
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All segregated funds offer: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?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 EntrepreneursA Clear Solution for Entrepreneurs
I know that there’s an insurance product that could protect my personal assets.
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.
80%80% Did not Did not knowknow 79%79%
AgreedAgreed
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 Are we as Financial Advisors being responsible by not being responsible by not offering these products? 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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SummarySummary
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