How to Save for Retirement as a Freelancer
There are a plethora of freedoms that come with freelancing – from being your own boss, to setting your own schedule, to ultimately determining how much you earn. Your destiny truly is in your hands!
While this is generally exciting, it can also be a bit scary – especially when it comes to preparing for retirement. A traditional employee can elect to have retirement funds automatically deducted from their paycheck and matched by their employer. Freelancers have no such luxury – making this “freedom” a double edged sword.
Fortunately, saving and investing for retirement doesn’t have to be challenging as a freelancer. The following strategies can help ensure that you’re well prepared to leave the workforce in comfort, when the time arrives so you can move to one of the Best Retirement Cities and live happy without a second thought.
How to Prepare for Retirement as a Freelancer
The following seven tips will make saving and planning for retirement far more effective. Implement these strategies today, and “future you” will be very thankful.
1. Pay Your Taxes
It can be very easy (and tempting) for freelancers to under report their income on tax day. Not only can this unethical behavior get you into legal trouble, it also undermines your retirement. According to the IRS, social security payments are based on the 35 years that you earned the most. The more you pay in, the more you receive during retirement. Many countries use a similar system for retirement benefits.
2. Invest Through Retirement Accounts
Regular investment accounts are a great way to build wealth with money you can easily access. However, there are tremendous tax benefits to investing in retirement accounts. As a freelancer, you can invest in an IRA (roth or traditional), SEP-IRA, and Personal 401(k). Although you can’t access these funds until you retire, the tax benefits mean your wealth will increase much faster. And using a robo-advisor service for these investments makes it almost effortless.
3. Schedule Monthly Contributions
It’s recommended that a 25 year old employee saves 10% of his income for retirement. For a freelancer who doesn’t receive an additional 1-5% from their employer, it’s probably smarter to aim for 20%. This is particularly true if you’re older. How do you make this happen? Schedule automatic monthly payments into your retirement account. Some months you may have to pause the payments and other months you may be able to put in more – but an automated payment ensures that your retirement savings continue to grow.
4. Invest for the Long Haul
According to the book, The Millionaire Next Door, the reason there are so few millionaire stock brokers is because they constantly buy and sell stocks – striving for a fast buck. Meanwhile, the secret to accumulating wealth is to buy-and-hold for the long-term. Don’t get distracted by small drops in the market (and never think about day-trading). Instead, check your investment accounts sparingly (maybe once or twice a month), and spend that extra time working so that you have more to invest.
5. Invest in Index Funds and ETFs, Not Solo Stocks
It’s amazing how quickly a thriving company can go out of business. To prevent your retirement from disappearing when your dream stock disappears, invest in buckets of stocks rather than single companies. As a whole, the stock market always goes up. You’re much safer betting on this than on individual stocks. So automate your savings and diversify your portfolio as much as possible – you’ll be thankful in your retirement years.
6. Pay Off Your Home
One of the easiest ways to prepare for retirement is to find a house you can afford and start turning those monthly rent payments into equity for your retirement days. Then, pay off that mortgage! Not only can this save you as much as 40% in annual expenses, but it also gives you an asset that can be tapped for additional capital in the future. If you want, it might be worthwhile talking to someone such as Key Advice who can guide you on what to do for your retirement finance.
7. Develop Several Streams of Residual Income
As a freelancer you already have a skill that can be easily monetized. Why not use it to develop some type of residual income? Write a book, start a blog, or build a self-sustaining business. Embrace your flexible lifestyle to become a stay-at-home business owner or traveling entrepreneur. Create something that can make money without your constant involvement and you’ll continue to receive an income far into retirement. Finally, remember that you don’t have to be rich to invest like a millionaire – so start working on that residual income right away.
The More You Prepare Today, the Better Off You’ll Be Tomorrow
Saving for retirement doesn’t have to be overwhelming if you set up the right processes from the start. Minimize your own effort required to save, and your wealth will grow on its own. If you start building equity, automate your savings, and develop several streams of income, you’ll be well prepared for your retirement years before you know it.
Planning for your retirement can also present an opportunity to begin making plans for your estate. No one likes to think too much about no longer being around, but you need to know that your loved ones will be taken care of, your assets will be safeguarded, and that your wishes will be respected once you die.
Ultimately, the goal of estate planning is to make the administration of your assets as straightforward as possible. Furthermore, a comprehensive estate plan gives you total control over the distribution of your assets. For more information about estate planning, try reaching out to an Estate planning attorney for legal advice tailored towards your individual circumstances.
Now, determine what you can do today to start saving for retirement, and get started!
Author Bio: Rob Erich is a writer, finance enthusiast, and avid traveler. He writes about the digital nomad lifestyle at MoneyNomad.com and discusses personal finance for InvestmentZen.com. You can connect with him on Twitter by visiting @MoneyNomadRob.