“Government studies in the UK suggest that up to 45% of freelance workers between ages 35 and 55 don’t have a private retirement account. In comparison, an estimated 84% of UK employees do have pension plans established by their employers. Most other countries, including Australia, are on trend with these same statistics. Perhaps simply the ease of signing up for a pension plan sponsored by a large corporation makes participation more appealing for employees.” – My Venture Pad
I wasn’t always a freelance writer…
In fact, if you had told me that I would be writing for a living, I probably wouldn’t have believed you. Sure, I had dreams of becoming a well-known author. However, I never envisioned that I’d actually be that lucky or talented.
While I have yet to write a book, and I am far from famous (a blessing in many ways, I’m sure), my website and freelance writing has brought me to places I never would have imagined. It brought me to a writing career that I absolutely love! (Thank you to everyone who has, and continues, to support At Home with Joanna and the writer behind the articles!) However, what does that mean for me when it comes to retirement plans?
When I first entered the job market, I was a cashier. From Brault et Martineau to Jean Coutu, I knew that a portion of my paycheque was going towards the Quebec Pension Plan. However, now as a freelancer, where does that leave me? What about the other (roughly) 2.18 million freelancers worldwide?
The following are just a few things I’ve learned while doing my own research on the subject.
- “The Three Pillars” of Canada’s Retirement Income System
- RRSP (Registered Retirement Savings Plan)
- TFSA (Tax-Free Savings Account)
- SMSF (Self-Managed Super Fund)
This article merely provides a bit of more general information on various options. Also, I live in Montreal, Quebec, Canada- what is valid for my situation may differ from yours. While I briefly discuss options for those outside of Canada, always seek professional advice!
“The Three Pillars”
“The Three Pillars” refers to government-administered plans, employment-based pension plans, and personal retirement savings plans.
These include:
- the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
- the Old Age Security (OAS)
- employer-sponsored pension plans and personal savings and investments
Since there is a plethora of information about these options, more official information can be found here.
RRSP
‘A Registered Retirement Savings Plan (RRSP) is a savings plan, registered with the Canadian federal government that you can contribute to for retirement purposes. When you contribute money to an RRSP, your funds are “tax-advantaged”, meaning that they’re exempt from being taxed in the year you make the contribution.’ – td.com
You can hold a wide range of investments within an RRSP, depending on the type of plan. This can include, stocks, bonds, guaranteed investment certificates (GICs), and mutual funds. Investment income earned from these investments is tax-deferred in the RRSP until you withdraw the funds.
How much you can contribute annually is subject to a maximum contribution amount. This is known as an RRSP contribution or deduction limit. However, with an RRSP, you do have the option to move your money around. Many see this as a benefit of this type of plan.
After the age of 71, all funds must be withdrawn from an RRSP, and moved into an account such as a Registered Retirement Income Fund, or, you may purchase an annuity.
TFSA (Tax-Free Savings Account)
“You can think of a TFSA like a basket, where you can hold qualified investments that may generate interest, capital gains, and dividends, tax-free. Once you’ve opened a TFSA, you can contribute to the account at any time, and earn interest or returns, tax-free — unlike a non-registered savings account.”
You wouldn’t be the first one to think a TFSA is a good option. You’d be among the likes of Montrealer Kathe Lieber, a 67-year-old freelance writer, editor, and translator. She, too, is a big fan of the “pay yourself first” philosophy. She has set up an automatic deposit to her high-interest savings account every month, which is a great way to save funds without even thinking about it.
A Self-Managed Super Fund
Depending on where you reside, you will have different options offered to you. For example, in Australia, they have SMSFs:
“An SMSF is a super fund that is managed by you and regulated by the Australian Tax Office (ATO). The purpose of the SMSF is the same as a typical super fund; to provide members money in retirement. SMSFs can have up to four members in the fund and members are often family members (although members don’t need to be related at all). While SMSFs come with the freedom and flexibility to invest your super however you want, though there are a number of costs involved and legal obligations to meet.”
SMSFs, like anything, have their pros and cons.
Some of the pros include:
- more than one family member can participate in the fund,
- if the property is held until retirement, no tax will be paid on the capital gains if you sell/rent,
- diversification of your portfolio and control of your investments, and more!
Many find that the biggest con of SMSFs is that they seem too complicated. If you’d like more information or help in regards to SMSFs, there are resources and experts who can help! It’s their job to know about everything and to help you come to the right solution for you and your loved ones.
As you can see, there are several options when it comes to saving for retirement. If you are a freelancer, it’s crucial for you to plan ahead and make educated decisions regarding your money and investments. I know it seems daunting, but your future self will definitely thank you for thinking ahead.
Are you a freelancer? How are you planning for your retirement? Please comment and let me know, and if you have any tips to share, all the better!
Other Valuable Information:
Forbes Best Retirement Plans for Freelancers
Retirement Preparations in a New Age of Self-Employment
Canada Pension Plan Post-Retirement Benefit (PRB)
How does the CPP compare to Australia’s superannuation funds?