With one-third of British Columbia’s population nearing the age of 50 and 17% already holding senior-citizen status, today’s business owners can never start planning their retirement too early.
“You should start planning for your exit the day you start your business,” Shane King, national leader of succession services at accounting, tax and business consulting firm MNP LLP, told attendees at a recent Business in Vancouver event.
While preparing sooner is better, King said business owners should begin planning at least five years in advance of retirement, or before they begin to transition out of the business. They should also prepare for the unexpected, including sudden illness.
About 50 people attended the February 13 event at the Shangri-La Hotel to hear advice on when and how to retire. Attendees heard from three retirement experts, while BIV reporter Hayley Woodin moderated.
Financial advisers can help plan strategies, but people should also seek out advice from succession specialists, lawyers and insurance professionals, King said. Discussions should include family members or employees to determine their interest in taking over the business, and attention should be paid to negotiating details, such as continuing health-care plans for the retiring owners once the business changes hands.
“Having your kids at the table is key, because a lot of the time your kids might be taking over the business,” he said, adding that business owners should have open conversations with their children and set up family trusts to pass assets along to future generations.
For many business owners, running a company is tightly entwined with personal identity, making it challenging to change ownership and transition into retirement, King said. He suggested that those about to retire think past the financial rewards of exiting their business and take a good look at their hobbies and interests outside of work.
David Lee, financial adviser at BlueShore Financial, said there is “no magic answer” as to when it’s the right time to retire, and everyone has a different idea about what successful retirement looks like. He said people should examine what kind of lifestyle they want to have during their retirement and should spend more of their savings on travel or other interests during the earlier, healthier years of their retirement.
“You may want to work past 65 because you love what you do, while other people may want to retire before they are 65.”
With Metro Vancouver’s housing market unaffordable for many, Lee said retirees might need to factor in helping their children buy houses, and determine how this affects their overall retirement plan.
While registered retirement savings plans (RRSPs) continue to be a “good strategy” for many, they can have huge tax consequences, according to Lee. In addition to contributing to RRSPs, he said, people should consider opening tax-free savings accounts for the long term, buying guaranteed-income annuities when nearing retirement and setting up power of attorney to authorize someone close to act on their behalf in case of illness.
A common myth, according to Adrian Bois, health benefits provider Pacific Blue Cross’ director of individual plans, is that the federal government will take care of us when we turn 65. While Canadians may once have relied on the Canada Pension Plan and old age security, they can no longer expect financial security from government pensions alone, explained Bois, who recommended planning early, learning about the full value of work benefits and building a strong investment portfolio.
Bois said having a flexible plan is also important, especially to pay health-care costs, which may no longer be covered by company benefits later in life. He said retirees often overlook the price of expensive new drugs on the market, and recommended they compare costs, learn about government-sponsored programs, register for PharmaCare and seek advice from other retirees.
“In retirement, it’s when we are likely to become the sickest in our lives, and probably when we are going to have the least amount of income, so you have to plan accordingly,” Bois advised.
Bois said health-care plans are struggling to keep up with the rapid pace of expensive new drugs being brought to market.
“The trends in pharmaceuticals are really aggressive right now,” he said.