Freelancer Retirement – Does It Ever Happen?

Freelancers are entrepreneurs in just the same way as e-commerce business owners are, and the growth of the freelance economy is exponential. But freelancing also brings with it specific financial challenges, especially when planning for retirement.

Freelancers are not in a workplace environment in which saving for retirement is rather automatic. Employees contribute to their retirements, often matched in some fashion by the employer, and they have mandatory contributions to a government-sponsored retirement fund. They retire with set pensions and personal investments, and hopefully they have enough monthly income to enjoy their waning years.

Freelancers are on their own. If they want to retire eventually, they have to plan for that through their own initiatives, or they will be working until they are carried away from their work and to the mortuary.

The Frightening Statistics

A recent study revealed the following facts:

  • People are worried about their retirements, specifically outliving their acquired savings, the higher costs of health care that come with aging, and trying to maintain a nice lifestyle.
  • Despite the worries, they are not taking initiatives to allay these fears. 25 percent of those in working years have nothing saved for retirement; 25 percent of those close to retirement have less than $5000 saved over and above their pensions (and freelancers don’t even have those pensions); most millennials have not begun a retirement savings/investment plan.

These are disturbing and frightening statistics about all retirement options, not just freelancer retirement.

What Options Do Freelancers Have?

It’s fun to see that money coming in. And it’s fun to enjoy a lifestyle that allows flexibility, such as vacations on your own terms. You work incredibly hard, and you should be able to enjoy the fruits of your labors while you are young enough to do so — new cars, a great home, and other luxuries.

But you also are solely responsible for your life when you decide to call it quits. This requires three things:

  • Making a decision to plan for those elder years.
  • Exploring options for retirement savings.
  • Exhibiting the self-discipline to stay with the savings/investments plans you decide upon.

How much should you stash away? Most investment professionals say 10 percent. Once you have committed to that 10 percent, you have to look at your options.

Here are the most common options that, over the long term, have proved worthwhile.

  • Begin an individual freelancer retirement account. Some require that you put in post-tax dollars, but the beauty is this: those funds earn interest over the years, and you will never be taxed on what you withdraw. A Roth IRA is the most common product for this, but there are limits on how much you can put in each year.
  • Begin an individual retirement account with pre-tax money. You get a tax deduction now, but you pay taxes on the money when you begin to withdraw it. There are also maximum annual amount limitations. The theory about using pre-tax dollars now is that your income tax bracket may be lower when you retire, and thus the tax burden on that savings will be lower.

In both of these cases, freelancers have options to contribute more than regular employees can.

Other Options

One of the great benefits of freelancing is that your time is more flexible. With that flexibility, you can probably set aside some time to study investing. A word of caution here: Do not think that you can compete with the “big boys” in the stock market. You don’t have the time. What you can do is take an investment course or two and learn how to be a smarter individual investor. There are lots of tools today that will let you analyze potential investments — use them to set up a freelancer retirement.

Making It a Habit

This is an issue that is specific to freelancers. Employees will have their retirement savings removed from their paychecks before they ever receive them. You, however, have accounts receivable, take in the money, and it’s all there – a big temptation. This is where the self-discipline comes in. Either you take that 10 percent and put it away, or you set up automatic withdrawals from your personal account to your standard investment plans.

You know yourself best. The important thing is the habit, however you have to do it.

The Long-Term Impact

A recent study showed that, in the U.S. alone, 53 million people are freelancers. In the UK, 1.4 million are. And these numbers continue to climb. We are rapidly becoming a planet of individuals who want control over their work lives and their incomes. With that control, however, comes a big responsibility — a freelancer retirement is all on you. If you don’t want to work until “death do you part,” make a plan.

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Written by:
Dianna is a former ESL teacher and World Teach volunteer, currently living in France. She's slightly addicted to apps and viral media trends and helps different companies with product localization and content strategies. You can tweet her at @dilabrien
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