Retirement means different things to different people. When our
medical professional clients meet with us for their annual
financial checkup, our primary objective is to ensure that they
leave informed and with a sense of relief and comfort. It is no
different than when their patients come to see them to address
their health issues.
The retirement discussion is not age specific, but it does
become a more prevalent topic as we get older. The focus of this
article is to address some of the financial aspects of
The second habit of Stephen Covey's Seven Highly
Effective Habits is, "Begin with the End in
Mind." It is much easier to plan for retirement when you know
where you are heading.
It is our role as an advisor to first, ask questions; second,
help identify goals and objectives; and third, provide some of the
solutions and options available to help you get to where you want
to be. Some of the questions that need to be addressed include:
When do you plan or expect to retire?
How much will you need to maintain your desired standard of
living in your retirement years?
What is your expected lifespan based on family history and
What are your goals for retirement (e.g. to work part time,
travel, get involved in community work, take up a new interest,
Will your children and/or dependents have financial needs that
will reduce your retirement pool?
Will you have sufficient funds to cover your retirement
Based on the answers to these questions, we will often be able
to establish goals and objectives. Once we know what the end game
is, it is much easier to put a plan in place to accomplish those
goals. Goals are not static, though. Retirement goals can be
revised or, in some cases, have to be revised based
on one's ever-changing life circumstances. It is important to
revisit your retirement goals and financial plan every few years
and make the appropriate changes.
Assets Retained in the Professional Corporation
One of the main benefits of incorporating a professional
practice is the ability to defer tax. For every $100,000 that can
be kept in a professional corporation and not withdrawn for
personal living expenses, there is an opportunity to defer
approximately $34,000 in taxes. If this strategy is utilized, many
professionals will have built up considerable assets in their
corporation by the end of their careers. These assets, often
invested in marketable securities, bonds, term deposits or real
estate, can make up a significant portion of a professional's
retirement nest egg.
In retirement, the professional will start to draw down these
assets, withdrawing monies, generally, as dividends. Currently, in
Ontario, dividends are subject to personal income tax rates ranging
from zero per cent to 40 per cent, depending on the recipient's
marginal tax rate and amount of other income. The timing and
quantum of dividend distributions from the professional corporation
should be discussed in advance with your advisor so that the
personal income taxes can be minimized to the extent possible.
The Use of Life Insurance
Some clients purchase a permanent-type life insurance policy
within their professional corporation. A permanent-type life
insurance policy is unique in that the policy can be over funded,
with the excess premiums going into a special account, which is
invested and grows tax-free. If the excess premiums and tax-free
growth are withdrawn from the policy, the monies become taxable
immediately, which is why some professionals leverage their
investment in life insurance policies. The monies received from
leveraging the policy can provide funds for the professional's
retirement. While we do not condone leveraging a corporate-owned
life insurance policy personally, if the funds from leveraging a
corporate-owned policy are received by the professional
corporation, they can be distributed as dividends. It is not always
recommended to hold a permanent-type life insurance policy in a
professional corporation, so prior to purchasing or transferring a
life insurance policy to your corporation, proper advice should be
Retirement is just another chapter in your life. But like
anything in life, if you are going to do it right, you need to plan
ahead. Goal setting is the first step. Proper advice and
planning will allow you to achieve those goals. Taking advantage of
the tax deferral opportunity afforded by your professional
corporation and utilizing a permanent-type life insurance policy
can enhance your retirement pool. So what are you waiting for? No
time like the present to get started!
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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