Preparing Your Wealth Strategy After Practice

In this final article of MNP’s series on the evolution of your practice, we focus on how to plan the use of your accumulated corporate wealth after you have retired from medical practice.

At this point, you are unlikely to be adding to your corporate wealth and, as with other retirement assets, you need to get comfortable with the idea that you will start to fund your retirement lifestyle from this source. But when?

First, some basic understandings:

1. You will need to legally change the corporate name once it is no longer registered with the College of Physicians as a medical corporation.
2. The primary method for distributions of corporate wealth in retirement will be with dividends. Dividends can only be paid to shareholders of the corporation, so make sure you have the right shareholders on board for your retirement stage.
3. It is always important to have a current will consistent with your evolving financial goals and a review of your evolving insurance needs, coverage and beneficiary designations should be done.
4. Ask yourself how much you will need to fund your lifestyle expectations in retirement. This answer will likely not be the same for the first 5 to 10 years, the last 5 to 10 years, or the time in between. Picture what your retirement life will look like and convert that vision into a financial summary.
5. You will likely have the following sources of funding in retirement: your corporate wealth, your registered retirement savings plan (RRSP) or registered pension plan (RPP) and individual pension plan (IPP), equity in your home (if you own it), a tax free savings account (TFSA), Canada Pension Plan (CPP) benefits, and Old Age Security (OAS) benefits.

Second, some basic strategies to consider to make the most tax-effective use of your retirement assets:

1. Recognize the impact on your personal income tax bill from accessing various types of funding in retirement. Income from your RRSPs, RPPs, IPPs, CPP and OAS are all fully taxable at your personal margin tax rate. Income from dividends is less taxable to you personally than the above. Accessing funds from the equity in your home or TFSA is generally not taxable.
2. Consider the ability to be flexible in how you plan to receive retirement income. Pension funding has a point where the funding becomes a fixed or minimum amount required to be taken. This may not work well with OAS benefits, which are clawed back when annual income rises above a certain amount.
3. Plan for a safety net before you need it. Ask yourself the question “If I encounter a problem in retirement that can be solved by writing a cheque, where would I get the money within a day?” If the answer involves triggering an increase in your personal tax bill, you might be thinking of the wrong solution.

Like all financial planning, there isn’t one right way to mix all of the above together. There is, however, a unique plan to meet your unique needs that will blend pieces of many different strategies to achieve your financial goals in retirement. Building a relationship with an experienced and knowledgeable advisor can help you find and evolve your unique retirement plan.

With 20 locations throughout British Columbia, MNP provides support to medical professionals at all stages of their careers. Contact Don Murdoch, B.C. Leader, Professional Services at 1.877.766.9735 or [email protected].