Important factors to consider when retiring early

Business Q&A

Published 16/01/2016 | 00:00

Q I AM a business owner aged 52 and considering retiring from my business, what challenges will I face?

A If you are over 50 years of age, the decisions you make in the coming years could be the most crucial decisions you will ever make and will likely have permanent and wide ranging impact.

You cannot afford to make big mistakes at this point in your life. The decisions you make now will have consequences and the areas that need to consider are: the financial prosperity of your family, the future of your business, Capital acquisitions and capital gains tax, the quality of your life? , the amount of stress & work that may or may not lie ahead for you and your family and how, when, and if you will retire?

There are big tax challenges and opportunities that kick in for business owners from age 50 onwards that should be considered by you. It is possible for you at this stage of your business life to have personal wealth, it means undertaking a process of careful planning.

Factors that need to be considered might include: reducing your workload at some point; getting others to take more responsibility, this may be family or internal management; ensuring that you have enough money to live on for the rest of your and your spouse's lives; succession & Inheritance issues; ensuring that you don't pay too much tax either by taking cash from your business at the wrong time, poorly timed pension drawdown or inefficient property debt or company structures; understanding & adjusting the risk/volatility profile of your pensions & investments to ensure sustainable future income

PUTTING YOUR FINANCIAL LIFE PLAN IN PLACE

The good news is that it is possible to bring all of these factors into a concise plan where each of these areas are linked together with reference to what you want to achieve for you, your family and your business. It might sound like a mammoth task, and it is, however it is possible to achieve. Remember, when a business owner reaches a certain age, there are not as many 5 year plans left as there once were to make the most of what you have built up over your working life. There are 3 key areas you need to consider approaching retirement:

Your Lifetime Cash flow Strategy: This involves looking at a detailed picture of your income & expenditure for the rest of your life and of your likely Capital gains tax Income tax liabilities. You will need to consider your net worth each year for the rest of your life and then have a clear plan on how to keep income taxes to a minimum and how to structure your income & timing of drawdown of various income sources you may have.

Succession Planning (Capital Acquisitions and Capital Gains Tax): As you reach retirement age, it is likely that you will be giving thought to the transfer of your business or other assets to your children. If done incorrectly this can lead to avoidable tax liabilities. You should have a clear plan for the ultimate transfer of your business & investment assets to the next generation. The plan needs to be complied by a qualified tax consultant and should meet your desires for the business and family in the most tax efficient manner. The plan should cover the complexity of your situation depending on business and personal assets including properties owned. You need to consider all available tax reliefs to prevent any unnecessary tax leakage occurring as part of the transfer

Pension and Investment Analysis: Understanding pension fees & charges contained within existing policies - Understanding and assessment of the nature of the risks associated with your pension funds - Understanding of future likely tax free lump sums & income from your pension.

If you need information on how to implement a retirement plan tax efficiently, contact Jim Doyle on 053 9170507 or email jdoyle@rda.ie

Wexford People

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