RETIREMENT PLANNING FOR THE SELF-EMPLOYED PROFESSIONAL OR BUSINESS OWNER

RETIREMENT PLANNING RETIREMENT PLANNING FOR THE SELF-EMPLOYED FOR THE SELF-EMPLOYED

PROFESSIONAL OR PROFESSIONAL OR BUSINESS OWNERBUSINESS OWNER

Understanding the MarketUnderstanding the Market

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.

THEY ARE THE BUSINESSTHEY ARE THE BUSINESS

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.

Reality Check – What has Reality Check – What has Changed TodayChanged Today

Business OwnerProfessionalConsultant

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?

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.

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.

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.

Individual Pension PlanIndividual Pension Plan

IPPIPP

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

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

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

2004 Contributions 2004 Contributions IPP vs RRSPIPP 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

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

At RetirementAt Retirement

Life Income Fund (LIF)Locked-in Retirement Income Fund (LRIF)AnnuitizationDirect Payment of Pension

On DeathOn Death

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

On Termination Prior to Age On Termination Prior to Age 6969

LIRA

Investment OptionsInvestment Options

RRSP eligible investments

AdministrationAdministration

Mandatory fundingAdministration costsAccuarial costs including valuation every 3

years

THE EXECUTIVE THE EXECUTIVE RETIREMENT ACCOUNTRETIREMENT ACCOUNT

The MarketThe Market

Who can take advantage of the ERA concept?

Business owner-managers Key employees Professionals of Prof Corp

Executive Retirement Account (ERA)Executive Retirement Account (ERA)

Share the benefits, not the ownership!

SimpleEffectiveFunded

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

ERA - The ConceptERA - The Concept

C.O.I. Fund

Employer EmployeeAgreement

StructureStructure

Owner-Manager buys UL policy and makes annual deposits to the fund

Names company irrevocable beneficiary of face amount.

Company pays COIFund value grows tax deferred-available for

retirementFace amount tax free to company at death

ERA - The ConceptERA - The Concept

C.O.I.Fund Value

Tax-deferred Savings.

Employer EmployeeAgreement

Funds forEmployer/CDA

Funds for Retirement

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

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

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.

Segregated FundsSegregated Funds

Who Can BenefitWho Can Benefit

Business owners of any sizeProfessionals from all fieldsConsultants and contractors

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

All segregated funds offer:All segregated funds offer:

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

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

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

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.

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