Special to the The Globe and Mail – By Dianne Maley
After years of running a successful business, Tim and Tamsin are hoping to retire by the end of 2023. He will be 63 soon, she is 67. They have two children in their 30s.
“I founded a tech company 11 years ago and much of the profits (from the operating company) have been channeled into a holding company,” Tim writes in an e-mail. He draws a salary of $140,000 a year and pays Tamsin $42,000 a year. The business is generating about $500,000 a year in income, he writes.
Tim plans to wind down the operating company when he retires because the technology is becoming outdated. They are looking for the most tax-efficient way to generate retirement income from the holding company, which has about $2.5-million in retained earnings.
Tamsin and Tim have a retirement spending target of at least $132,000 a year after-tax, which they hope to stretch to $160,000 a year. “Can we sustain the retirement budget or do we need to leave some for emergencies?” Tim asks. They intend to give $500,000 to their children in the next five years as an advance inheritance. They plan to leave their Vancouver home and the capital remaining in the holding company as an estate.
We asked Brinsley Saleken, a fee-only financial planner and portfolio manager at Macdonald, Shymko and Co. Ltd. in Vancouver, to look at Tim and Tamsin’s situation.
WHAT THE EXPERT SAYS
Tim and Tamsin clearly have the assets to accomplish all their goals, Mr. Saleken says. “In all scenarios we considered, they can retire, gift the $500,000 over five years, and need never consider selling their home,” the planner says.
In the base scenario, where they spend $132,000 a year, “they are more able to accomplish their secondary goal of maintaining the capital value of the holding company,” Mr. Saleken says. The holding company is estimated to have a value of about $3.9-million by the time Tim and Tamsin retire and income from the operating company ceases. The value of the holding company drops a bit in the early retirement years, but recovers by the end of the projection.