Later life, self-employment and the CPP “fluster-bust”.

Over the years as I have coached or mentored clients on their entrepreneurial options, the solopreneurs who have chosen to structure themselves as a sole proprietor, very often forgot to consider that they needed to figure in to their financials & cash flow management, the allowance for payment into the Canada Pension Plan (CPP). This in a number of cases came as a shock to them.

10392541_10152796030710897_5280415243706246182_nEven more shocking was the fact that many who were off to the races so to speak had yet to find a qualified referral to not only an accountant, but also a certified financial planner (CFP) who was not selling financial products. Lucky for me, my accountant is also a CFP and from the get go he laid out a clear path of understanding on all this and every year we have had this holistic conversation about my financials, personal savings, banking, taxes, CPP. It has always been a matter of self- discipline.

Surprisingly, so many times I’ve even spoken with people who have been sole proprietors for years, who have failed to keep up with changes to CPP, and still forget to withhold monthly about 10% of their earnings (employer and employee contributions combined). They play silly games with cash flow and almost begrudgingly say things like “and I still have to pay two portions of CPP”. On top of all that, there is no personal plan for financing for their longevity beyond the CPP.

If the trend towards self-employment is to continue for people at continuous stages of life, on into their 50’s, or well in to their 60’s or 70’s, it will always remain a cornerstone that CPP contributions will be part of the deal. Of course, the recent adjustment to the CPP due by 2019 has caused a tizzy for some, but it simply means that someone self-employed under a certain age will have to expect a 2% increase in CPP contributions. Adjust cash flow expectations accordingly.

The Globe and Mail article from June 24 – What does CPP expansion mean for self-employed workers? – is a crisp, clear starter piece for those in start-up mode and a refresher for those who have been self-employed for years. Read this article and then have your questions prepared for a meeting with your accountant, because there are options going forward; and this is also a great time to pause, take a walk in the park and re-examine your overall goals for your business.

Self-employment for some people is an episodic journey, wandering in and out of this way of working, but there is no start and stop button on making contributions to the Canada Pension Plan. It is an ongoing process, which could potentially adjust as you reach age 60.  Even if you are collecting CPP after age 60 or 65 and have self-employed income, you can still pay in to the plan.

My only advice to someone considering self-employment, who is fluster-busted by the tinkering on Canada Pension Plan, is don’t let this dissuade you. If you truly have an enterprising mindset, this current, often emotional public debate over CPP only serves as a distraction. Go create value in the market – whatever type and scale of business you choose and think of yourself as a business if you really intend to make a go of it.

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