The year 1975 marked the peak of bell-bottoms, soul music and employer pension coverage in Canada. At that time, roughly half of Canadian workers had access to a workplace pension. Today, that figure is under 40 percent. For about 2.6 million self-employed Canadians, employer pensions are effectively non-existent.
Whether you run a restaurant, work as a freelance designer or provide day labour on a landscaping crew, you cannot rely on a workplace pension to support your retirement. Unless you have substantial rental income or investment returns, your business—and the savings you set aside from it—will need to fund nearly every dollar of your retirement. So how should self-employed people plan and save?
Thuy Lam, a senior financial planner and money coach at Objective Financial Partners, works with sole proprietors as well as employers who hire staff or contractors. She says saving for retirement while self-employed is entirely possible, but it demands both discipline and creativity.
“The world of investment opportunities is open to you,” Lam notes. Self-employed individuals can use strategies that employed workers often cannot, giving them ways to contribute more toward retirement in good years and to shelter income more effectively.
Start saving for retirement with government programs
All Canadians who have worked in the country are eligible for the Canada Pension Plan (CPP). People aged 65 and older who meet residency and income requirements may also qualify for Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). OAS and GIS are not directly employer-funded, but CPP involves contributions that, for self-employed people, effectively include both the employer and employee portions—making CPP a larger expense than for someone on payroll.
How much should you save for retirement?
There is no single correct savings target for every person. Useful planning starts with cash flow: know what money is coming in, when your busy and lean periods occur, and what your long-term financial priorities require. Ask yourself:
- When are your highest-earning months or years?
- When do you experience leaner times?
- What are your biggest long-term financial goals and how much must you set aside to reach them?
Once you understand those dynamics, you can work backward to determine how much to save now for retirement. A common guideline is to set aside 15% to 20% of take-home income for retirement—higher than the roughly 10% often recommended for employed Canadians—because self-employed individuals typically face higher CPP contributions and taxes. Another rule of thumb is to accumulate about 25 times the annual income you expect to need in retirement.
Max out your RRSP, especially in good years
Choosing the right account matters. Many Canadians save inside a registered retirement savings plan (RRSP). Maxing out available RRSP contribution room is especially important for the self-employed because workplace pension benefits can reduce RRSP room for salaried employees, while self-employed people often have greater flexibility to grow registered assets.
If you operate as a sole proprietor or incorporate and pay yourself a salary, take advantage of RRSP contributions when income is strong. RRSP contributions provide tax deductions that are more valuable in higher-income years because of Canada’s graduated tax system. For 2024, the maximum RRSP contribution is $31,560 or 18% of the previous year’s earned income, whichever is lower; unused contribution room can be carried forward.
Because self-employed income can fluctuate, it makes sense to contribute heavily in high-income years to capture the tax benefits and continue building retirement assets during prosperous periods.
Use TFSAs and consider selling business assets
Tax-free savings accounts (TFSAs) are another valuable vehicle for self-employed savers. Earnings and withdrawals from a TFSA are tax-free, making these accounts useful for building a nest egg without ongoing tax drag. TFSAs can hold cash, exchange-traded funds (ETFs) and other investments, offering flexible, tax-free growth for funds you may need in retirement.
For self-employed Canadians who own property, intellectual property, equipment or other business assets, selling those assets when exiting the business can meaningfully boost retirement savings. Many small-business owners plan to sell or transfer assets as part of their retirement strategy; a large portion of planned business exits are motivated by retirement funding needs.
However, relying on a business sale as your primary retirement plan has drawbacks. Selling to an outside buyer might yield a higher price and a comfortable nest egg, but the process can be complex and sometimes turbulent. Valuation, tax implications, buyer searches and transaction risks mean you should prepare well in advance and seek expert help.
Engage specialists—a succession planner, business valuator and financial adviser—to assess your business, structure the sale if appropriate, and ensure the proceeds align with your retirement goals.
Have an exit strategy
Whatever combination of accounts and assets you choose, consistency matters. Try to make regular contributions to your retirement savings even if income is uneven. Small, repeated savings add up over time; larger, strategic contributions in high-income years can accelerate progress. Lam warns that many self-employed people prioritize the business and forget to save for themselves—building and following an exit strategy helps ensure you’ll be able to enjoy retirement when the time comes.
Further reading on retiring without a pension:
- Single and no pension — planning options for individuals
- Single parent and no pension — strategies to balance parenting and retirement saving
- New to Canada and no pension — guidance on establishing savings and accessing benefits
- Small pension — making up for limited employer-provided retirement income
