Retiring After Self-Employment: A Boomer & Echo Financial Makeover

After running a successful business, the O’Sullivan’s want to gradually scale down their involvement before selling, and spend their winters in Arizona. Is this couple on track to meet their retirement goals?

Family Profile

Jerry (55) and Monica (53) O’Sullivan are self-employed. They live in Sarnia, Ontario. They own a home worth $700,000 with a $390,000 mortgage, and a free-and-clear cottage worth $550,000.

They have three children, 24, 19, and 16. The O’Sullivan’s are covering the bulk of their children’s current and future secondary education costs.

Related: Managing proceeds from a rental property sale

Within the next two years, they plan to hire someone to manage the business on a day-to-day basis and only be involved in overseeing. They expect to sell the business after five years, either to an independent buyer or turn it over to one of their children.

Current Assets:

  • Home worth $700,000 (with $390,000 mortgage)
  • Cottage worth $550,000
  • RRSPs – $500,000
  • TFSAs – $26,000 each
  • Non-registered investments in a holding company – $600,000
  • Savings account – $50,000
  • Business valued at $700,000
  • RESP – $110,000

Their investments are a mix of dividend paying stocks plus ETFs in a 70% stock / 30% fixed income mix.


  1. Semi-retire in two years.
  2. Fully retire in five years with an annual after-tax income of $80,000.
  3. Spend 6 months in Arizona and the rest of the year in Canada.
  4. Cover their children’s education costs (6 years).

The O’Sullivan’s wonder what steps they can take over the next 2 years to solidify their plan of a comfortable retirement.

Financial Plan

The couple wants to reduce their involvement in their business prior to selling and start living their retirement dream. They will eventually receive government benefits, but the bulk of their income will come from the business sales proceeds and investments. Here’s what they can do:

Develop a succession plan for the business

Selling a business they’ve spent years developing is a difficult decision. Advance planning for the sale is important. Many businesses are too dependent on their owners. They must build a management team to make the business sustainable without their presence and enable them to exit on their own terms.

Related: Succession planning

The O’Sullivan’s should meet with their accountant and ask him to review their tax situation. The tax consequences can be huge without proper planning, even if transferring ownership within the family.

They also need to get a realistic up-to-date appraisal of the business to see if it will fetch the money they need to retire.

Sell current home and cottage

The O’Sullivan’s are considering selling their current home and the cottage to purchase a smaller home in Sarnia for $500,000 and a winter home in Arizona for $200,000. The couple believes they will net approximately $100,000 from the sales, which they will invest in an ETF portfolio.

A couple can no longer claim two properties as principal residences. They may only designate one residence between them. They need to speak to their accountant about the best way to treat the capital gains (for either property) for tax purposes. It may reduce the net amount they expect to get.

Wintering in Arizona

When purchasing property in the U.S. it’s important to get the advice of a sales agent and lawyer experienced in out-of-country home purchases. Changing U.S. income and estate tax rules, especially if they plan to rent their home in the off-season, can be especially complex. The proper income tax forms must be completed to avoid double taxation.

If they plan to stay in the U.S. for more than 4 months they must fill out a “Closer Connection Exemption Statement” form for stays up to 183 days.

Related: Snowbirds – What you need to know

Be mindful of Ontario Health Coverage that states residents must be physically present for 153 days of the year for coverage.

Retirement income

Jerry and Monica will receive $100,000 annually in dividend income from their business when they semi-retire. Once the business is sold they want an after-tax income of $80,000 in today’s dollars. Most of this income will come from their savings. CPP and OAS will start at age 65.

They will need a total savings of approximately $2.6 million to realize this income in retirement based on an investment return of 4%.

Funds in the holding company can provide tax efficient income with regular dividends plus investment withdrawals are taxed as capital gains (as are other non-registered investments). RRSP and RRIF withdrawals are taxed as regular income.

Create a tax-efficient withdrawal plan.

Final thoughts

It is imperative to consult with competent, experienced professionals when selling a company and buying foreign property. This avoids costly misconceptions and unnecessary expenses.

Related: Have you considered a permanent retirement overseas?

For the next few years the O’Sullivan’s must take steps to increase their investment portfolio by contributing as much as possible to reach the desired goal. Otherwise, they may need to keep the business for a few more years. Even so, they are well on their way to a comfortable retirement.

Would you like to be featured in the next Boomer & Echo financial makeover?  Send us an email with your question or financial dilemma.

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  1. Robin on February 6, 2015 at 10:53 am

    Does ANYONE plan to scale back their lifestyle when they retire? I keep seeing Makeovers and FP analysis of people with LOTS of money and assets and pension plans and paid off homes (and cottages!) but I never see one for the average 60 year old who has worked all their adult life in a non-pensioned job and has meager assets and savings. I understand these people to be in the majority in this country, what about a makeover/analysis/sad-shake-of-the-head for them?

    WE are looking at a reduction in income from $70K/year combined income to about 1/3 of that with a completely paid off home, no debt, about $150K in investments and combined pension and CPP income of about $2000/month. WE are 59 (him) and 60 (her). She is already retired from full time work and trying to start an art business. Him is planning to work 2 more years as an incorporated independent consultant and then retire, or semi-retire and enjoy what mobility remains to him. The plan is to collect her CPP now and invest it, while she continues to get paid by the consulting corporation, and he will do the same this fall when he turns 60. The combined $50K from 5 years of CPP payments, plus the $60K from collecting the deferred pension will top up their RSP and TFSA savings and allow them to live comfortably but not extravagantly.

    • Gary on February 7, 2015 at 8:57 am

      robin; your description sounds more like the real world. everyone’s comfort zone is different as it should be. i wish you both a happy, healthy retirement!

  2. Atticus on February 6, 2015 at 9:37 pm

    @ Robin,

    You and your spouse are planning to live on 24,000 a year? Have I got that right? If so, how can you be sure that you can live “comfortably” on that.

    Also, what happens if your investments tank? I hope I don’t sound critical. I really hope you succeed, and I’m actually curious about how you could manage on $24,000

    @ Marie,

    Lots of planning required. It’s good to get an idea of exactly what is required. Thank you.

    You urge the O’Sullivans to “Create a tax-efficient withdrawal plan”. Would you mind writing a post about how one accomplishes that?

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