It's Your Money  

Retirement planning for the self-employed

Retirement planning tips

Retirement planning is crucial for everyone, regardless of their employment status. But for self-employed individuals, the responsibility of planning for retirement is even more critical.

Without the benefit of an employer-sponsored pension plan, self-employed Canadians must take proactive steps to ensure a secure and comfortable retirement. Here are 10 tips that can help those that are self-employed reach their retirement goals:

Start early: One of the most important tips is to start retirement planning as early as possible. Time is a powerful ally when it comes to building wealth for retirement. By starting early, you can benefit from the compounding effect of investments over the long term, maximizing your savings potential.

Create a retirement budget: Developing a retirement budget is essential for estimating your future income needs and determining how much you need to save. Consider your desired lifestyle, expected healthcare expenses, and any potential financial obligations. This budget will act as a roadmap for your savings goals.

Set up a dedicated retirement account: Establish a separate retirement account to segregate your retirement savings from your day-to-day business expenses. Options such as a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA) are often excellent choices for self-employed individuals but there are many other options as well.

Maximize contributions: Take full advantage of the contribution limits allowed in your retirement account. The more you contribute, the more tax advantages and growth potential you can enjoy. Keep track of your allowable contribution room and aim to maximize it each year.

Consider a spousal RRSP: If you have a spouse who earns a lower income or does not have a pension plan, consider contributing to a spousal RRSP. This strategy allows you to income-split during retirement, reducing your overall tax burden and optimizing your retirement income.

Diversify your investments: When planning for retirement, it's crucial to diversify your investment portfolio. Consider a mix of low-risk and high-risk investments to balance potential returns with stability. Diversifying some of your assets outside of your business (and industry) is often overlooked by those that are self-employed.

Stay Informed about tax strategies: As a self-employed individual, understanding the tax implications of your retirement savings is essential. Familiarize yourself with tax strategies such as income splitting, capital gains exemptions, and utilizing tax credits. Stay updated on any changes to tax laws that may impact your retirement planning.

Maintain an emergency fund: Building and maintaining an emergency fund is crucial for everyone but even more so for self-employed individuals. Having a financial safety net allows you to handle unexpected expenses or business downturns without tapping into your retirement savings prematurely.

Consider insurance coverage: Explore insurance options that provide coverage for health, long-term care, and disability. Adequate insurance protection can safeguard your retirement savings in case of unforeseen circumstances or medical expenses.

Regularly review and adjust your plan: Retirement planning is not a one-time task. It's essential to review your retirement plan regularly, especially if you experience changes in your income, expenses, or goals. Consider seeking professional advice from a qualified financial planner who can help you make adjustments and keep your retirement plan on track.

Retirement planning is a critical responsibility for self-employed Canadians. By following these top tips you can build a solid foundation for a financially secure retirement. Remember, seeking professional advice from financial experts can provide personalized guidance based on your unique circumstances.

With careful planning and disciplined savings, you can enjoy the retirement lifestyle you deserve. Start today and secure your future.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett has worked in the financial advice industry for over 15 years and is designated as a chartered investment manager(CIM) and certified financial planner (CFP).

In 2014, Brett was appointed to the board of directors of FP Canada (the national professional body for financial planning) and spent seven years on the board, including his final two as board chair. More recently, he was appointed to the Financial Planning Standards Board (FPSB), which is the international professional body for this industry with a three-year term beginning in April 2023.

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy-to-understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the national and global boards focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns or if you’d like a referral to a qualified CFP professional in your area by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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