Couple with late-start retirement plan putting a lot on shoulders of their small business
Situation: In mid-40s, small business owners have taken dividends more than income, cutting CPP Solution: Cut dividends, then boost salary to raise CPP to build pension security
In Toronto, a couple we’ll call Louis, 46, and Laurie, 47, have two children 10 and 13 and a family management consulting business from which they take $10,594 a month after tax in salaries and dividends. Their spending is modest save for one huge expense — $3,500 a month year-round for sports for their children. It’s affordable now, but they face a major hurdle.
“Can we retire in eleven years from full-time work?” Louis asks. “I would like to teach a business course at a community college on a part time basis. We’d like to have $96,000 a year before tax for the first decade and a half and then $72,000 a year before tax after that.” They expect an inheritance of $500,000, but it could be long in the future.
Along the way, they’d like to buy a US$300,000 home in Florida, pay off their $195,000 home equity line of credit and help their aging parents with the costs of care should that be needed. It’s a big order for a couple betting everything on their small business, a business management company with $670,000 in annual sales but no lock on the market and no guarantee of future income.
Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Louis and Laurie. “They are in the expensive years of life with costly kids’ sports and a lot of debt. But the interest costs, which are related to their business, are deductible from taxable income. Moreover, their home is fully paid, their $473,400 of Registered Retirement Saving Plans is respectable for their ages and their income draw from their company is reasonable and conservative.”