Pumping up your Retirement Income!

In my travels I meet many business people who wonder how they will survive retirement based on their RRSP solutions. For higher income earners the RRSP generated income will be significantly smaller than what they are earning before they retire.

This is an interesting problem because most folks I meet who are retired want to spend more money than before they retired, especially if they still have their health. Why do you think that might be? Well, quite simply they now have the time to do all those things that they might have been putting on hold. Buy new toys, boats, cars, mobile homes, renovate their home for retirement or like me they love to travel. Perhaps they want to visit the homeland of their family for the first time or simply cruise the Mediterranean. Not only, do they want to do all those things they can think of, but also their peers are also retired and invite them to do activities they hadn’t planned…. playing golf at Palm Springs in January or storm watching off the coast of Vancouver Island. These activities tend to all have one thing in common, they all cost money.

There is a way that a company can purchase a maximum funded universal life policy, for the executive or shareholder. The corporation owns the policy and is the beneficiary. The shareholder uses the policy as collateral for personal loans. A fee is paid to the corporation for the use of the policy as collateral based on market rates for similar guarantees. These loans are tax free and are used to create income for the individual.

At the insured’s death, the death benefit is paid to the corporation and creates a credit to the capital dividend account (CDA) equal to the death benefit less the policies Adjusted Cost Base. The corporation uses the CDA to pay a tax-free dividend to the estate of the shareholder, who then repays the loan.

Premiums can be paid out of corporate cash flow. However, if a company has retained earnings this works as a nifty strategy to shift some of those earnings into the hands of a shareholder on a tax-free basis.

In this day of high mobility of executives and shareholders between companies, this might be a very attractive perk to keep them in your firm. Make sure you are the first to offer it to them, and not your competition.

(This can be a complex strategy, please feel free to contact me for further information as it might apply to your own situation.)