Retirement planning for the self-employed

Since they don't have employee benefits, self-employed professionals need to focus on protecting and planning for their retirement.

Christine Tremblay | Journalist

Being your own boss definitely has its advantages, but it also means that you and you alone are responsible for making sure your current and future needs are met. 

Maybe you head up a small business or you provide professional or technical services as a lawyer, engineer, accountant, translator or hairdresser--no matter what kind of business you have, you need to plan well to ensure your financial independence in retirement!

Although, self-employed workers can count on the retirement pension under the Quebec Pension Plan (QPP) (or the Canada pension plan (CPP)) and the federal Old Age Security pension as government guaranteed pensions , it is essential that the self-employed have other sources of retirement income.

Start contributing early 
The sooner you start saving for retirement, the better. "Even if you're just starting out and you're not bringing in a lot of revenue, it's still better to invest small amounts early and develop good savings habits. If you prefer to maintain access to liquidity or your revenue fluctuates, investing in a more flexible vehicle like a TFSA[1] instead of an RRSP[2] could be a good avenue," says Angela Iermieri, a financial planner with Desjardins.

You should also think about the pay model that's right for you. Since it has an impact on your RRSP contribution room, salary-based or dividend-based pay should be considered both in terms of the benefits in retirement as well as the immediate advantages. 

Diversify your investments 
Many entrepreneurs and other self-employed professionals only consider the resale value of their business or firm in planning for their retirement. But unforeseen events, like illness, depreciation in the value of the business or a loss of clientele can have a huge impact on your retirement funds.

"It's important to make sure you diversify your assets based on current and future needs. We never know how our professional or personal life might change," says Iermieri.

There are a number of investment vehicles, including RRSPs and TFSAs, that self-employed professionals can choose from, both for short-term and long-term needs.

Protect your retirement 
Since they don't have employee benefits, self-employed professionals need to focus on protecting and planning for their retirement; they need to consider all aspects of financial planning. That includes effective tax-planning strategies and evaluating insurance needs.

Because you can't anticipate an accident or a critical illness that could drain your savings and jeopardize your retirement plans.

"For self-employed professionals, thinking about retirement requires a more comprehensive plan. And they shouldn't hesitate to seek out the advice of a personal finance specialist who understands their field as well as you understand yours. Financial advisors and planners also have access to specialists who can meet all your business needs, so you can focus on your clients and your business," says Iermieri.

[1] Tax-Free Savings Account
[2] Registered Retirement Savings Plan

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