Episode 210: How to Build Your Own Pension as a Canadian Business Owner

Listen here on our website:

Or jump to this episode on your favourite platform:

Watch Now!

Should you keep your pension—or build your own?

If you’ve left a teaching or public sector job to start a business or invest independently, the idea of commuting your pension can feel intimidating. Do you trade the safety net of a predictable income for the freedom (and risk) of building wealth your own way? In this episode, Jon and Kyle break down the mindset and math behind pensions—revealing what most people misunderstand about “guaranteed” security and how business owners can create their own version of it. Whether you’re missing the comfort of a defined benefit plan or wondering if those “golden handcuffs” were ever worth it, this conversation reframes what financial certainty can really look like.

You’ll discover:

1. The real rate of return behind traditional pensions—and why they’re not as generous as they appear.
2. How to replicate pension-like security using a well-structured, high–cash-value insurance policy or other conservative strategies.
3. A practical framework for balancing growth, flexibility, and risk so you can build your own financial “floor” without sacrificing upside potential.

Press play now to learn how to design your own pension-style safety net—and take control of your wealth on your own terms.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Building lasting financial security in Canada starts with a clear Canadian wealth plan that integrates business ownership, financial planning, and tax-efficient investing. Through smart use of insurance, RRSP optimization, and corporate wealth planning, entrepreneurs can design a path toward financial independence Canada—balancing salary vs. dividends, managing personal vs. corporate tax, and leveraging investment strategies like real estate investing Canada and diversified portfolios. A strong financial vision includes retirement planning tools, capital gains strategies, and risk management systems that support both modest lifestyle wealth and legacy planning Canada. By aligning financial buckets, corporate structure optimization, and passive income planning, business owners can turn their companies into engines of wealth creation and financial freedom. This is the essence of Canadian Wealth Secrets—a roadmap for building long-term wealth Canada through strategic financial systems for entrepreneurs and intentional estate planning for generations to come.

Transcript:

If you’re a former teacher or a public sector worker now charting your own path as a business owner or investor, the idea of commuting your pension might be sitting in the back of your mind. It’s a decision that can seem confusing, risky, or even reckless to some, but for others, it might be the most strategic move on the board. For those who have never had a pension, i.e. all you incorporated business owners like us, you might want a pension. Well, today we’re going to be talking about the pros, the cons of those pensions, how you could replicate one for yourself if you really want that safety and that security. And then we’ll talk about why so few actually are willing to take the plunge in order to do so. John, we ready to dig into all things pension and pension lists for our Canadian wealth secret seekers.

Well, was gonna, that’s what I was gonna push back on. It’s like, well, I might, because right now, the way that you just heard that as a listener, you’re like, wait a minute, I’m not a teacher, I’m not commuting anything, you guys are talking not me. But we are talking you, right, but we are talking you because this is the question we’re really trying to answer here today is to say, obviously there’s a group of people that think pensions are valuable, this is why they exist and why so many people are saying like, because I don’t know how about you, Kyle, how many people when we’ve actually left teaching is like, but what about your pension? Like that’s the first question. That’s the first question people ask about. it’s like, but like we’ve got to, as a business owner, a, know, incorporated business owners, we typically, we don’t have pensions and it’s like, well, do we even want one? And, and therefore it’s like, well, why do I want one? Like if this whole community over here is like, You gotta have a pension. And this whole community over here is like, hey, we’re good, we’re good. Like you guys are all wrapped up in your safety net over there, but we’re fine over here. That’s what really what we wanna talk about is because it’s like, if I’m a business owner and I’ve never thought about those people with pensions and I’ve kind of written them off, maybe there’s something over there that I could then create inside my corporation or inside my business that could be beneficial to me. And then on the other side, it’s like, could I do the same? So it’s like, that’s what we really wanna unpack here today.

Yeah, you know, I think you just nailed it. It’s like, you know, for us, we got to see both sides, you know, which we’re in a very unique position. Not everyone has come from the T4, the golden handcuffs, and have gone to this other side where, you know, it’s much more risky being in business for yourself. You don’t know where the next paycheck’s coming from. But at the same time, you know, it’s easy from one side, like looking over the fence to the other to kind of want what somebody else has. So for example, incorporated business owners, you’ll hear a lot of people when they have a spouse who has a pension, for example, they go, you’re lucky. It’s like you get to mail it in after, you know, when you’re whatever age or after how many years of service and all of those things. But the part that they don’t see is that actually the amount of benefit they’re receiving for that pension is actually not as great as you might anticipate. It’s like it’s sort of created for you and you’re kind of forced into it. And you also don’t have a whole lot of, you know, we’ll call it optionality in how that looks and sounds. If you work that T4 job, you go all the way through and you start receiving that pension. Now, on the other hand, the T4 employees often looking over the fence and saying, well, like you have no ceiling. on the amount of earnings that you can make as a business owner. Well, exactly, exactly. Yes. Well, and that’s the pro and the con, right? Like the ceiling, no ceiling is the pro, right? You go like, well, if you go into business for yourself, you’re a hard worker, you’re a grinder, you’re determined, you’re willing to make it happen. It’s like the the world is your oyster, right? But on the other hand, you could work really hard, you could have good intent. and you might just be missing certain pieces of the puzzle and you might not earn a whole lot and you you could be in dire straits so you’re capped, you’re saying, or not capped, but I was thinking on the pension side, if I flip over to that side for a sec, it’s like, you might see that side, there’s no cap on that side, but there’s also no floor. Over here there’s a floor, but I also have, in a way, defined cap. Unless I’m gonna do something extra, I know exactly what I’m gonna make, which may be comforting, and is comforting to many people, but also says that’s where you’re gonna stop.

Right, right. And I think, you know, as humans, they’re like, we definitely have this urge, this want this desire for certainty, right? Like we’re in an uncertain world, but we do want certainty and a pension and a t four job gives you some of that certainty. I’m going to put an asterisk there because you know, not all industries like you could be let go. You know, there’s things that can happen along the way. It’s not exactly perfect, but You could really, you know, in that world and especially from us coming from education, it’s like assuming that everything works out and you do work all the way to the end, you could almost like to a decimal point, figure out like how you’re gonna be, where you’re gonna be at and what else you need to do, whether it’s like extra RRSPs, extra tax free savings, real estate, whatever you’re gonna do to supplement that pension income. Whereas on the business owner side, a lot more moving parts, right? Like, you know, again, no ceiling so I can earn a ton. But what’s that going to look like down the road and what we find so often when we look at one side to the other, right? The person that has the pension typically is looking to like push things up like they want like they want to increase that ceiling. They want to, you know, build their wealth a little bit more aggressively. And then on the other hand, the business owner side, they want more certainty. But then they run into some of these challenges that with certainty comes giving up some things in particular. Sometimes it’s like actual like potential growth or gains on certain types of investment vehicles. And that’s what we kind of want to unpack here. Like when you’re giving up one thing, if you’re going to commute a pension, for example, you’re giving up more certainty for more upside potential, but you’re also losing that safety net. Right? Like you’re, when you commute a pension, you’re almost taking your pension and treating it like a T four job and, and then going to like the private sector and going over here and saying, I’m going to grow this business, but if I do it wrong, I might be left with nothing. Right. And that’s sort of the challenge I think a lot of us are up against is trying to figure out how valuable is certainty for us versus how valuable is growth, flexibility, and all of those other things that kind of go along with it.

I think that you what you just said there is I think the biggest the biggest question we all answer about our finances is can we put like what is the price we put on on risk because that’s that’s what you’re saying is like I I’ve got this certainty here but it costs me I could have uncertainty over here where I have unlimited upside but I also have unlimited downside so what what price do I put on risk and this is what insurance is all about right like price of risk like that’s calculated for you. Now I want go back to something specific you said because you said something about the value of pensions themselves and then not giving you the results you thought you were really getting. And I think because if you know you are buying less risky or you’re putting money up front for say limiting your risk, if I all of a sudden as a business owner was like, you know what, I don’t want a pension because I’m giving up upside. Like talk to us about like the realities of what like what pension returns really look like.

Yeah, like I say this so often with the incorporated business owners that we work with whenever they’re looking at setting up certain, you know, high, high cash value policies and things for leverage strategies and all these things. They often ask, like, what is like, where does the money go? And how does it all work? And I often rep like I suggest that the actual insurance policies and the insurance companies are actually taking your premiums and they’re investing it much like a pension fund would. So when we think about this for a second, like a pension fund, when they receive all of the contributions from the employee and the employer, this is the invisible part that people miss on a pension. go, I’m only contributing, you know, as a teacher was 12 % of my pay went to the pension. But guess what? It was getting matched by my employer, by the government in our case. Like that was like 24 % of my annual income going into this pension. And if you actually calculate both of those sums, and actually see the rate of return you’re getting on your pension, you’d actually be a little bit like surprised. But at the same time, what they’re doing is the pension fund is taking those dollars, they’re putting it into an investment pool and they’re trying to create the most strong, sustainable, lifelong lasting pool of funds that they can make sure that all the pensions can healthily be paid out. But here’s the nuance, it’s like, They might have, like Ontario teachers pension plan had like a really good year recently. It’s like pensioners didn’t benefit from that directly. All that they benefited from was getting a stronger sense of the foundation that their pension will continue to get paid out. It’s going to be there. Exactly, exactly. And the same is happening when we’re looking at permanent insurance. And when we look at high cash value policies, for example, par whole life, they’re putting it into a fund, which is actually acting exactly like a pension fund. and they’re giving a portion back to all of the different policies. know, of course it’s proportional based on policy size and all of those wonderful things. But ultimately at the end of the day, they’re giving you certainty. So, you know, when I look at like in the private sector or when I look at people that are incorporated business owners, like we have the opportunity to create the financial foundation or floor for ourselves financially, which could be done through. a permanent insurance policy properly structured. And we could essentially replicate what a T4 employee is receiving. The one nuance though, is the T4 employee gets much less flexibility in what’s going on there. you know, they have to like quit their job in order to quote unquote, commute the pension. And even then they don’t have access to all the funds. goes into a lira and you know, then they have to wait until they’re 55 to access it. Whereas as a business owner, like we can decide to cancel the policy, take all the money and run, we can leverage the policy and invest it into higher risk assets. If let’s say we feel our financial floor is secure and strong enough, we could do nothing and just be very conservative like a pensioner would be and say, Hey, I’m gonna let this grow like a GIC. And I get to get a benefit of a death benefit when I do pass on a lot of these things that we don’t get as a pensioner and therefore, know, kind of part of today’s discussion was to get people thinking whether you have a pension that you are planning to commute or maybe you have commuted or whether you’ve always wanted, you’ve looked over the fence, you’ve always wanted to have a little bit more of that certainty. It’s like, we have the option to build this for us. And again, unfortunately for the T4 employee, it’s like the flexibility again is owned by the business owner because we get more optionality, but with that means making harder decisions and choices, which sometimes we just never follow through on.

Yeah, like, can’t I do this with, putting a, like, you talked about a floor, and I think if we’re trying to match a pension, and thinking about like, wanna create the safety of the pension, which is a financial floor, and then all of a sudden it’d be acting like a pension, which is, you know, all of a sudden I have a safe withdrawal rate over the course of my lifetime. Like, pairing the 4 % rule with trying to build the floor up using, let’s say, a fixed income portion of my portfolio, or say, you know, it’s in bonds or it’s like, or it’s dividend paying. But I mean, like, if you think about saying, I’ve got this locked down, like, why isn’t, like, I think that’s where a lot of businesses were like, I have a pension, I built my own pension, it’s now just in the markets in these kind of safe areas, you know, you’re not fully safe, but you know, you’re somewhat safe. Why is that not, or compare, I guess, like, why? Why do I want to say move towards this insurance product instead?

Yeah, well, and I would even argue like anyone who is considering commuting the pension, it’s like I would still I would commute because you and I are commuting and we’re doing that in the next year. Commuting over is a great move so that you can maximize the dollars that are in that now what will be called a lira. But I want all those dollars to be like more growth oriented, right? Let them grow tax free, let them balloon, let them do what they’re going to do. And we’re going to have access to that. That’s great. But the part I don’t want to do is I don’t want to shut my eyes and assume that the markets will all just kind of work out because on average everything’s great because we don’t know what’s ahead and we don’t know when that’s going to happen. The sequence of returns risk does exist and it is something that’s worth noting. So what we often suggest is that, you know, if you don’t have a pension or if you had a pension and now you’re commuting it, you no longer have a pension anymore. Unfortunately, now you’ve got to manage this money and figure out how am I going to get that level of certainty? And you have to decide what that baseline is. So if I’m looking at it and I’m saying, listen, I want to replicate the $60,000 of pension I was going to have if I was a teacher until I retired. If I want to do that same thing, I’m going to take the fixed income portion of my portfolio, just like you had referenced. And instead of having it in a balanced mutual fund, like a balanced fund is like where there’s some growth, there’s some bonds, there’s this, there’s that, all these things to try to. Like a target date fun. Yeah, try to get you to a certain rate of return. Well, guess what happens there is you ultimately stick around a lower average rate of return, and you still have risk on the table due to volatility, right? Especially in a black swan event. Instead of that, we’re going to go, you know what? Let’s take whatever part we want in growth assets, whether that be real estate, equities, a combination, private equity, whatever it is that you’re doing on the growth side of things, whether they produce some income or not, I would still say they’re more risk on. If that’s 70%, I want to take 30 % and I want to create this pension, but I’m going to do it in a whole life, high early cash value policy. And when I do that, what I’m creating is essentially this fine financial freedom floor that I have. And I get to with more predictability decide, okay, if I do this for X number of years, and I have 30 % of these, you know, investable assets going into this bucket, What’s that gonna look like when I want to hit this financial freedom number in 10 or 15 or 20 or 30 years, whatever that number is for you. When we look at that, we can then look at what would be a safe leverage rate against that policy that we could utilize to replicate what these pensioners or what we former, you you and I were former pensioners, what that would look like for us in retirement. And then we let everything else go in the growth world. And the result is that if everything else went to zero, we still have our quote unquote pension, which would put us in a very similar boat to if we did this while keeping our pension in force and then investing the rest. Ultimately, at the end of the day, though, the vast majority of people out there get so hung up when they look at insurance and they go things like. You know, I’d only it only grows at, you know, three to four or 5 % a year on cash value, they don’t consider any of the other benefits. And they assume that it’s like an all in strategy when it really isn’t. What we’re trying to get people to kind of recognize in this episode is that you can create a level of certainty for yourself. And again, it’s a level of certainty, we’re not going to get 100 % certainty on all the assets you have. But at least decide like, what’s that minimum level safe floor that you’re after. And then just funnel the portion that you would already had in bonds, fixed income, GICs, T-bills, whatever it is that you’re investing in on the fixed income side. And you slowly funnel those dollars into this policy. And what you end up with is a flexible pension in your own back pocket, which gives you a certain level of certainty plus ultimate flexibility. Like I said, you change your mind in 10 years, you hit the eject button, you cancel the policy. I don’t think it’s a good idea because now it’s taxable if you do it, but it’s an option for you. And it’s not locked up in something like a lira or any other type of bucket that’s going to cause this huge tax issue for you with out putting something like this in place.

Now we better comment on how that can happen. Let’s say you haven’t heard us talk about this pass-through structure or structure to kind of be your wealth reservoir here on this podcast before. It could be, hey, I just tuned in for the very first time. They’re talking about insurance policy, isn’t that for people who when I pass on, it’s for them, not me. So like you’ve been, cause you’ve been saying it’s flexible and it’s a floor for us and it can act like a pension, but how does it act like a pension? Like let’s talk, let’s make sure that we are clear there.

Yeah, for sure. Yeah, this is very, very specifically designed. We call it a high early cash value policy. We’re basically pulling as hard as we can down on the death benefit so that it’s as low as possible to start. Why? Because chance of you dying this year is very low. OK, like that’s the reality. When you put a policy in force, you don’t want all your dollars going to death benefit, or at least I don’t. I want it going to cash value and the cash value keeps those dollars liquid. through leverage. those people who are all about Smith maneuver, they’re all about using leverage in order to grow their wealth. This is like one of the most conservative leverage strategies there is. My policy gets to grow like a GIC on cash value. The death benefit starts as we’ll say for the unlucky folks that die early. They get a massive return on that result. That’s not what we want. Ideally, what we want is to live a nice long life. have cash value grow much like a bond, much like a fixed income product, but we have the benefit of a tax-free death benefit on the back end. That means when I leverage against this policy, whether it’s for cashflow and retirement, whether it’s to leverage into an amazing opportunity, let’s say there’s a great real estate opportunity you have, guess what? We can leverage this tool. I can’t leverage my lira. I can’t leverage my pension. I can leverage this tool so it can be as safe as I want either like let it set and forget or I can actually use leverage against this tool to help me in other growth assets. A lot of people say though like I don’t want to borrow money. I don’t want to pay money in order to use my own money. Well guess what the policy is going to be growing at about what you’re borrowing at. So for the funds that you’re actually utilizing you’re going to be at about a break even. unless you’re taking all 100 % of cash value or all 100 % of premiums you’re paying in, most people don’t, you’re always going to be net ahead on that, which is a really important aspect here. So for us, we use it as our fixed income part of our portfolio. We’re still heavily growth. You you and I, I’d like to say we’re in our forties. We’re not that old yet. But over time, we will want to sort of, you know, bring growth down a little bit, even though it’s hard to understand now, all of the statistics show that as we age, we get more conservative. Like, if you talk to older people, you talk to the next generation above you, it’s you’re always like, why are they so conservative? Like, it must be the generation. It’s like, no, no, they weren’t conservative. Like when they were your age, they’ve become that way because they’ve now hit certain aspects in their life, they built a pile, and they want to protect that pile. Well, the beautiful part about this tool is that as I go, have the right not the obligation to fund this thing for the rest of my life. So if I wanted to start to go more risk off, I could just fund this thing longer than I may have originally anticipated. I might have anticipated funding it for 10 years or 15 years and then stopping. But guess what, if I get to the 15 year mark, and I’ve got too much risk on assets, which happens for a lot of people, you have more growth than you anticipated, you use conservative rates of return. And now your portfolio is all out of whack. You’re like 90 10 in terms of equities versus fixed income. Guess what I start to do slowly sell off some growth, continue funneling it into this permanent life insurance policy. And guess what? Who’s at more risk at that point 15 years from now the insurance company is taking on a greater risk than they did today because now I’m 15 years closer to my last last year on this planet. So the longer I can fund this the greater the benefit is going to be for me. And I get to slowly move from all growth to slowly getting more towards a balanced portfolio, maybe a 60 40 or even a 50 50 at that time. And I have the ultimate flexibility through leverage. There are no pensions out there that have that level of flexibility. What they do give you is very, very certain numbers. You’re going to get X, Y or Zed per month. And that is it. And when you pass on There may be a survivor benefit, but there may not. Here, there is a survivor benefit and it’s gonna be tax-free to our estate. So to me, if you are considering commuting a pension or you wish you had a pension, we’ve got a much better strategy for you and I think it’s worth the discussion.

Yeah, no, think you summarized that well, it’s just like you just said, it’s like, if I don’t have a pension or I can commute it, I can create one using this structure. And it’s above and beyond other structures that I could be using to also recreate that type of safety and at the same time growth.

I love it. I love it. So friends, if you are curious and interested and you want to figure out whether something like this could be helpful for you in your situation, you should head on over to canadianwellsecrets.com forward slash pathways where you can take a quick little assessment, see where you are along the four stage journey and decide for yourself whether it’s worth the conversation. If it is worth the conversation, head on over to canadianwellsecrets.com forward slash discovery and you can book a call so we can run your scenario. for you. And as always, just keep in mind that this is not advice. This is not financial accounting tax or any other type of advice. And as a reminder, Kyle Pierce is a life license and accident and sickness agent and the president of Canadian Wealth Secrets Incorporated.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

OPTIMIZE YOUR FINANCIAL FUTURE