Planning for retirement can feel like solving a complex puzzle, with each piece representing a decision that could impact your future. But here’s the good news: It’s never too late to take control. In this series, we aim to simplify the process, providing actionable insights to help you confidently manage your financial future.
When Corynne Bisson was laid off from her job as a restaurant server earlier this year, she decided to pursue work as a full-time freelance videographer and video editor.
This new career also meant a new approach to her retirement planning. As a server, Bisson could rely on getting three to five shifts a week, which allowed her to put at least $50 from each twice-monthly paycheque into her Registered Retirement Savings Plan (RRSP).
“Then, at the end of the month, if I had money left over, I would manually put [more money] in,” Bisson explains of her serving days.
Now that Bisson, 32, has switched to freelance work, her savings routine is very different.
“I have taken off automatic deposits altogether,” she says. Depending on how much work she gets, Bisson now manually contributes anywhere from $0 to $400 per month to her RRSP.
Freelancing means rethinking your money game
Bisson says she does feel more stressed saving for retirement as a freelancer. “It’s mostly just the irregularity of things,” she explains.
Many Canadians, especially Gen Xers and millennials like Bisson, are entering the freelance world. Statistics Canada that 13.2 per cent of the country’s working population are self-employed.
And while it has its perks, the unpredictability of self-employment income can make saving tricky for freelancers. For those who enjoyed automatic deposits to pension plans and RRSP matching in their previous full-time jobs, it’s even more of an adjustment, according to Calgary-based certified financial planner Kevin Cork.
“The shift moves from your employer to you in terms of taking responsibility,” he explains. But he doesn’t view it as a disadvantage since freelancers have more freedom to invest their retirement savings as they see fit, compared to set company-wide pension plans. “There is that flexibility,” Cork explains.
Build the foundation before worrying about the future
On top of starting a new business, it can feel overwhelming to think about retirement savings when you’ve just gone full-time freelance. That’s why Cork says it’s okay for freelancers not to worry as much about retirement contributions for the first few years. “You’re just trying to get gigs, and you don’t know if your income is going to be $20,000 or $200,000,” he explains.
After a freelancer is more established, they can be more deliberate around retirement savings. Once an emergency fund with three months of savings is established and funds for taxes are set aside, Cork suggests going for a percentage-based approach, redirecting 10 to 20 per cent of income towards retirement savings.
“If you’re 45 years old, versus 25, you want to do a higher percentage of your income,” Cork says, since your savings timeline toward retirement is shorter.
Cork advises allocating half an hour a month to bookkeeping and accounting, which includes manual deposits into retirement accounts. Aside from months with no earnings, he encourages freelancers to create a strict habit of moving a percentage of profits into retirement accounts each month. “You have to impose the discipline that the government or company is not there to impose on you,” he says.
Those with incomes under $50,000 will want to put their retirement savings into a Tax-Free Savings Account (TFSA), while those earning more than $50,000 should consider using an RRSP to benefit from tax deductions. Once savings are in those accounts, freelancers can choose how to best help those funds grow.
“If people want to spend the least amount of time thinking about it, set up the dullest, most vanilla, most boring balanced fund,” Cork says. “You have to get into a pension mindset. They are invested much more conservatively.”
Upgrade your freelance business and save on taxes
As freelancers build their careers and earn $70,000 to $100,000 or more a year, that’s when Cork says they can consider incorporating. “If you don’t have to spend all the money you earn, then you can leave money inside a corporation and have it grow as a retirement pot there using taxed-advantaged dollars,” he explains.
As a rough example, a freelancer with a $100,000 income being taxed at 29 per cent would pay $29,000 in taxes a year. However, $100,000 in a corporation would be taxed at a lower tax rate that applies to small businesses meeting certain criteria, around 17 per cent, translating to $17,000 a year in taxes and an additional $12,000 a year of savings.
“It gives you a third pot, RRSP, TFSA and corporate now, to create that retirement nest egg,” Cork says. He notes that it costs about $4,000 to $5,000 to file annual tax returns for a corporation, which is why the strategy only makes sense for freelancers earning above a certain threshold.
The golden rule of freelancing: save, don’t splurge
Naturally, Cork advises freelancers, once established, to seek the help of a certified financial planner for a more tailored financial strategy. That’s especially true in the case of additional savings goals, like purchasing a home. Those who are moving to a freelance structure but have significant funds in a company pension might also seek the help of a financial planner for their next steps. “They may decide to leave it in the company pension plan, or they may decide to pull it out,” Cork says.
If saving for retirement as a freelancer feels complicated, Cork leaves us with one simple, parting tip.
“Just to get into the habit of setting the money aside,” he says. “Ninety per cent of financial planning is literally, ‘Don’t spend all you make.’”
