If Mike and Gary want to continue with a lavish lifestyle into the future, I suggest they cut back a bit for the remainder of Mike’s career in order to amass funds for retirement. They currently only have enough to fund about three years of their lifestyle, and they have life expectancies of about 85 years, so they are very unprepared at this time.

My first concern would be to ensure that Mike has appropriate disability coverage in place, as their future savings will likely stem mainly from him since Gary wants to slow down and his income will be unpredictable. In addition, I would recommend a large amount of critical illness insurance for both of them. In Mike’s case, after consulting with his accountant, he may decide to share the premiums with his corporation. He can also add a return of premium feature that will pay back his premiums when he retires if he chooses to collapse the plan at that time. With disability and critical illness policies in force, they will be better prepared for the unexpected.

I would also recommend that they both set up an Individual Pension Plan (IPP). This would be ideal for them, as it allows significantly more contribution room than an RRSP, and unused contributions based on past years’ service can top up the plan. They could transfer their existing RRSPs into the IPP. It would be a defined benefit plan that could provide an annual income equal to a percentage of their highest earnings over a given period. Contributions to the IPP would be tax-deductible to their corporations, and benefits would be taxable when paid out to Mike and Gary.

Finally, to enhance their cash flow, they could rent out Gary’s office space upon his retirement, or consider moving into a smaller space at that time.

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Originally published on Advisor.ca