The ranks of self-employed and part-time workers continue to swell as patterns of work shift more to contract and freelance assignments. While many people enjoy the freedom and flexibility of this type of employment, there is usually no company pension to fall back on, income can be irregular, and workers must cover bills that employers typically pay, such as insurance.
In addition, putting away money for retirement can be a challenge.
Joe Barbieri, a fee-only financial planner in Toronto, finds that dealing with unpredictable income and cash flow is their greatest hurdle when saving for retirement.
Those employed in the so-called "gig" economy must determine their annual income minus expenses and come up with a budget that allows an annual surplus that can be earmarked for savings. "You will not know how much to save if you don't have this mastered," Mr. Barbieri says.
Because income for the self-employed can be higher in some years than others, they should focus on maximizing their contributions to registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) whenever possible. It's a strategy that will lower taxes in high-earnings years and sweeten that retirement pot.
Even so, retirement planning may come with some harsh realities.
"There are people that you have to say, 'Your plan is not doable,'" says Sandi Martin, a fee-for-service financial planner at Spring Personal Finance in Gravenhurst, Ont. That stark truth confronts about a third of her self-employed clients, she says.
Some clients thus conclude they must take on more risk in their portfolios, a strategy that Ms. Martin views as directly contrary to what someone without steady employment should do.
"To me it is a dangerous game to say you should take more risk because you are behind the eight ball," she says. These people can't afford the potential losses that can come with higher risk investments.
Instead, they should take on less risk and concentrate on building an emergency reserve for unexpected large expenses or an inability to work for a period of time. They should also buy disability and critical illness insurance.
When it comes to investing, her advice for self-employed and part-time workers is the same as for her other clients.
They should diversify as widely and cheaply as possible, and stay away from individual securities, which can rise and fall and swamp their portfolios. Consider exchange-traded funds (ETFs), which offer diversification at the lowest possible cost.
They should also consider automated online investing. "Most people don't have time to manage their money, a robo-adviser can do that for them," she says.
As for replacing the steady and reliable payouts of a pension, alternatives are limited. Annuities will work, but they are expensive for newly retired people, Ms. Martin says. She suggests clients wait until age 70 before considering an annuity.
She does not view her role as a lifestyle scold, but rather her job is to give clarity. She tells clients, "'If you spend the way that you spend, this is what retirement will probably look like for you. Are you okay with that?'"
If a client is not happy, he or she must acknowledge the lack of choices. "The only levers that you can pull is you can save more or you can spend less," Ms. Martin says. "But it is not my job to tell people this is the one you should pull."
On the other hand, Tom Feigs, a certified financial planner with Money Coaches Canada in Calgary, says his self-employed clients have many ways to deal with a retirement shortfall.
"I lay out options: more income, less spending, different income [sources], a change in your assets – sell your recreation property, things like that. There are usually several options."
The self-employed also have one lever available to them that full-time workers do not: They can earn more either by working harder, taking on more assignments and clients, or by expanding their service offerings.