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Self-Employed: How to Prepare Yourself for Retirement

When we become freelancers or self-employed, we must understand our finances well to avoid costly mistakes and ensure we have enough to live a decent life. One of the financial elements that is often underestimated is retirement. Let us learn more about retirement and different saving options when you are self-employed. <h3>How much do I need for my retirement?</h3> Before we start saving, knowing how much you will need for your retirement is essential. When do you want to stop working, and what types of retirement do you want? Do you wish to travel a lot or live in the countryside? We should also take with a grain of salt some hearsay stating that you need many hundreds of thousands to have a comfortable retirement. Do not hesitate to meet a financial planner with the expertise of guiding business people to help you. It is important to consider all your assets, the value of your properties, and the government plans when planning and calculating what you need. <h3>How to save money for your retirement?</h3> Some might say they are already saving money for their installment taxes and cannot put aside more. Unfortunately, if you are a self-employed person or a freelancer, you must think about saving enough money for your retirement. How can you do it? <h3></h3> <h3>Put aside a part of your income</h3> As you may already do it for your taxes, consider putting some money aside for your retirement when you receive payment. It is a good habit to take; you can also use direct debiting if needed. If, when you are paid, you realize that you do not have enough money to save some of it, it might be a sign that you are not asking enough. You must think about all your business expenses and your retirement savings when you set your rates if you want to be profitable. <h3>Different saving options for retirement</h3> Several options are available to self-employed individuals who want to save for retirement. Here are some of them. Once more, we strongly recommend you take the time to meet a financial advisor to see which plans and options are the right ones for you. RRSP The Registered Retirement Savings Plan or RRSP remains one of Canada's most common retirement savings. As long as the savings stay in the plan, you do not have to pay any taxes. Moreover, your RRSP contributions can help you reduce your taxes.  However, please note that you cannot contribute to an RRSP if you own a business and have no salary. Also, RRSP can be used to buy your first house. TFSA The Tax-Free Savings Account or TSFA is another interesting retirement-saving option. More flexible than the RRSP, its contributions do not allow you to reduce your taxes. This type of account will enable you to put aside tax-free money; various kinds of TFSA are available.  It is also possible to use the TFSA for different types of projects, not only for your retirement.  IPP The Individual Pension Plan or IPP is available to business owners who meet some specific requirements. Similar to the RRSP, the amount of the contributions is not taxed as long as it is not removed; the eligible amount is also superior to regular RRSP contributions. If you own a business, this could be a relevant option if you cannot contribute to an RRSP. VRSP The Voluntary Retirement Savings Plan or VRSP is offered to those who do not have access to a retirement saving plan with their employer. It is simple: you can contribute by setting a deduction at the source. It is important to mention that the RRSP and the VRSP have the same maximum contribution. The contributions are also deductible for income tax purposes.  <h3>Does a self-employed is eligible for Canada and Quebec’s Pension Plans?</h3> If you are a freelancer or a self-employed person living in Quebec, you can benefit from both government levels for your retirement if you have registered and contributed to these plans throughout your career. It can make a difference in the available income when you stop working. First is the Canada Pension Plan (CPP); all Canadian workers contribute to it. These taxable monthly benefits can be requested as soon as you turn 60. The available amount will be established according to your revenues throughout your career and the moment you make the request. The Quebec Pension Plan is a similar program for workers from Quebec. We also need to mention that when you are 65, you will have access to the Old Age Security Income Supplement. This federal plan targets to provide a basic income for all Canadians. In 2023, the maximum old age income supplement for people between 65 and 74 years old is $691 per month. The Guaranteed Income Supplement can also be offered to people aged 65 and older with low incomes.  <h3>How can you register for these plans?</h3> It is simple to register for these government plans. You only need to contact Service Canada and Revenu Quebec online or by phone. You will have to fill out a form for both levels. Once you are accepted, you will have to start to pay your contributions. In conclusion, retirement may seem far, but by preparing yourself today, you will avoid much stress. Start by meeting a financial planner, and see which saving options are the best for you. As a self-employed person, if you want to lower your taxes, besides contributing to an RRSP, you can <a href="https://www.momenteo.com/blog/as-a-freelancer-what-expenses-can-i-deduct" target="_blank">deduct business expenses</a>. Good luck!

Ariane