Top 7 Alternative Ways to Save for Retirement

Imagine nearing your sixties only to realize that your retirement savings depend on an RRSP you never maxed out. Unfortunately, this is an unsettling reality for millions of Canadians.

A significant portion of Canadians lack sufficient retirement savings or access to a workplace pension plan, highlighting the importance of exploring alternative ways to save for retirement beyond an RRSP.

Fortunately, the financial landscape offers diverse ways to save for retirement besides RRSP, like TFSAs earmarked for medical costs, real estate, annuities, and income from side hustles that can help you build a robust retirement plan without relying on an employer retirement plan.

Best Alternative Ways to Save for Retirement Besides RRSP

Before we explore some of the best options, it's important to understand why seeking alternative ways to save for retirement can dramatically strengthen your financial future. Relying solely on an RRSP may leave gaps due to multiple reasons like limited employer matches, contribution caps, or simply not having access to a workplace plan. This is why it is extremely significant to explore other ways to save for retirement besides RRSP.

By incorporating annuities, real estate investments, TFSAs for specific goals, and more, you'll create multiple avenues for growth and get the peace of mind that comes when your future is secured financially.

Method 1: TFSA (Tax-Free Savings Account)

TFSAs are the most common alternative ways to save for retirement for those seeking tax-advantaged retirement savings. You contribute after-tax dollars and all investment growth and withdrawals are completely tax-free. This makes it an ideal alternative way to save for retirement without an employer.

Key Advantages:

• Interest, dividends, or capital gains earned inside a TFSA are never taxed; either on accumulation or when you withdraw.
• You can withdraw money at any time without a penalty.
• There's no minimum withdrawal or a particular amount set.

Limitations:

• Annual TFSA room is $6,500 as of 2024 and over-contributing incurs a penalty of 1% per month on the excess amount.
• No ‘immediate tax break' as contributions don't reduce your taxable income in the year you make them.

Method 2: TFSA Earmarked for Medical Costs

Canadians can use a TFSA earmarked specifically for medical expenses in retirement. By holding low-volatility investments such as high-interest savings or GICs, inside a TFSA, you can recreate the tax-free growth and withdrawal advantages of a health saving account for medical costs.

Key Advantages:

• Your earnings grow tax-free and withdrawals for medical costs incur no tax or penalty.
• No high-deductible health plan is required, any Canadian can open a TFSA and allocate a portion to health-related savings.
• Withdrawals from TFSA require no special CRA documents unlike claiming the Medical Expense Tax Credit which requires detailed receipts.

Limitations:

• TFSA contributions do not reduce your taxable income.
• Using TFSA room for medical costs competes with your other saving goals so you must prioritize.
• TFSA withdrawal is not a tax credit, it simply avoids tax.

Method 3: Secured Guaranteed Retirement Account

An annuity, often referred as a Secured Guaranteed Retirement Account, is an insurance contract, purchased from companies that guarantee future cash benefits in retirement in exchange for a series of premium payments or a single lump sum. Some common types of annuities include:

• Immediate Life Annuity: Payments start shortly after purchase and continue for life.
• Term Certain Annuity: You receive payments for a fixed term such as 10 or 20 years and if you die early, the remainder passes to your beneficiaries.
• Deferred Life Annuity: These provide longevity insurance as you can buy now but payments begin at a set future date.

Annuities can be one of the most reliable alternative ways to save for retirement for those seeking predictable income streams.

Key Advantages:

• Guaranteed income stream allowing you to structure payouts for a lifetime, mitigating the risk of outliving your savings.
• Canadian insurers are backed by Assuris, which protects up to 85% to 100% of your contract value in case the company fails.
• A Guaranteed Minimum Withdrawal Benefit (GMWB) rider provides a benefit base that ensures withdrawals despite market downturns.

Limitations:

• Surrender charges (including the annual fees) can last a long time.
• Annuity contracts are often complex and complicated, making it hard to compare features and total costs.
• Once annuitized, contractors often impose steep surrender charges for early exit.

Method 4: Real Estate Investments

Talking about different ways to save for retirement and not including real estate would be a crime. Real estate investments can include purchasing a residential or commercial property to rent out or opting for a Real Estate Investment Trust (REIT). REITs are companies that own, operate or finance income-producing real estate. You can buy publicly traded REIT shares through a brokerage or hold them in retirement accounts.

Key Advantages:

• Rental properties generate monthly cash flow.
• Real estate owners can deduct mortgage interest, property taxes, insurance, maintenance, and depreciation.
• Real estate keeps appreciating over time as rent and property values tend to rise with inflation, building equity.

Limitations:

• Selling property can take months or longer, making it less liquid than stock or bond holdings.
• Hands-on landlords must handle repairs, tenant disputes, vacancy periods, and legal compliance and hiring property managers require a fee.
• Down payments, closing costs, and ongoing maintenance require substantial upfront cash.
• Local market downturns or shifts in demand can reduce property value and rental income.

Method 5: Income from Side Hustles

One of the most creative alternative ways to save for retirement is earning extra income through side hustles or gig work like e-commerce, freelance consulting, or rideshare driving. This allows you to channel your extra income directly into retirement savings or investments.

Key Advantages:

• Additional income can be fully dedicated to funding your retirement plan or taxable investments, helping speed up savings.
• Allows more financial freedom and reduces reliance on a single paycheck and employer.
• Side gigs qualify as ‘earned income', allowing contributions to saving accounts.
• Gig works and freelancing allow you flexibility, ideal for supplementary income without quitting your primary job.

Limitations:

• Balancing a side hustle with a full-time job can lead to burnout and take a toll on your personal life if not managed carefully.
• Gig earnings are variable and unpredictable, requiring disciplined budgeting to ensure consistent savings.
• You owe CPP contributions on net self-employed income, reducing net earnings unless you set aside funds for taxes.
• Side hustles do not offer health insurance or other perks.

Method 6: IPP (Individual Pension Plan)

An IPP retirement plan is designed for self-employed individuals or small-business owners. An IPP is a defined-benefit pension plan sponsored by your own corporation. For self-employed individuals, this means you act as both employer and employee, funding your own IPP based on your net income, making it one of the most powerful ways to save for retirement besides an RSPP.

Key Advantages:

• For incorporated owners over the age of 50, IPPs frequently allow significantly larger tax-deductible contributions than the RRSP limit.
• An IPP promises a formula-based pension such as 2% of average salary x years of service, guaranteeing a steady income in retirement.
• Contributions made to IPP are tax-deductible at the corporate level which lowers your business's taxable profit of the year.

Limitations:

• The complex setup of IPPs requires annual actuarial valuations, administrative fees, and an appointment plan administrator.
• You are required to make IPP contributions even if your corporation's cash flow dips, potentially straining finances in lean years.
• Winding up an IPP or changing plan design can trigger significant tax liabilities if not managed carefully.

Method 7: Non-Registered Investment Accounts

A non-registered investment account allows you to invest in stocks, bonds, mutual funds, and other securities. There are no contribution limits or early withdrawal penalties, making it one of the best ways to save for retirement without an employer.

Key Advantages:

• There are con contribution limits so you can invest as much as you want, whenever you want.
• You can withdraw funds at any time without restrictions and penalties.
• You get access to wide investment choices including bonds, REITs, stocks, etc.
• Offset capital gains by selling underperforming investments at a loss each tax year, reducing overall tax.

Limitations:

• Interest from foreign dividends or corporate bonds is fully taxable at your marginal rate.
• Behavioral risks such as easy access can lead to emotional trading, requiring discipline to stay invested through constant market changes.

Catching up on retirement savings by building a secure retirement plan without depending exclusively on an RRSP demands a well-thought-out and sustainable approach. By leveraging these alternative ways to save for retirement, you can craft a personalized strategy tailored to your age, income, and risk tolerance.

Start by setting clear milestones, automating contributions, and routinely monitoring your asset allocation. Whether you are an employee lacking an RRSP or a small-business owner seeking retirement solutions, this guide provides how to save for retirement without employer frameworks that can help you achieve a comfortable and financially independent future.

Need help mapping out a retirement strategy without an employer? Book a free consultation with a Sykora Financial advisor today.