3 Tips for Saving for Retirement as a Freelancer

Due to recent events of the Covid-19 pandemic, freelance work has seen a 41% increase over the past year. The surge of people interested in freelance leaves many wondering what being in control of their future really looks like.

Freelancing has become increasingly popular because it offers creative freedom, flexible working hours, and the potential for a higher salary – all while working from home. But what about retirement? 

Retirement has historically been a time for employed individuals to focus on their passions and hobbies, travel the world, or simply kick back and relax after decades of hard work. While it is true that freelancers don’t receive many of the same benefits as those who are employed by a company, both freelancers and employees alike share the goal of transitioning into life post-career gracefully. 

But when you’re self-employed, saving for retirement can feel like an afterthought – or even worse, a distant dream. However, saving for your retirement should be at the forefront of any freelancer’s financial plan! This is true regardless of whether you’ve been freelancing since long before the pandemic or have just picked it up. Things like healthcare and retirement are directly in your hands when you work as a freelancer, so understanding how to manage your life and work is crucial.

Don’t worry though, there are several steps that you can take to ensure that your golden years are financially secure. In this article, we’re going to fill you in on saving for retirement as a freelancer in this simple guide! We will explore three key tips on how to save responsibly as a freelancer while still meeting all of your current obligations. So let’s get started!

As a freelancer, it can seem intimidating to start saving for retirement. With so many other expenses and limited income, it can feel like there’s nothing that can be done. 

However, it’s important to remember that even just getting started will do wonders in the long run. The sooner you start saving for retirement, the more you’ll benefit in the future. Even if it’s just small amounts at first, it will add up over time and make a huge difference. 

This might seem obvious, but studies show that 1 in 5 people don’t save any of their annual income. The trouble is, many people talk themselves out of starting a savings plan because they don’t know where to start, or they don’t have much to start with…but guess what…You have to start somewhere!

Consider starting small and moving just 5% of your income. The goal should be to work your way up to 20% of your income, but as we said, you have to start somewhere! Simply taking the first step and starting somewhere makes valuable contributions down the road. Don’t wait too long or else you could regret not giving yourself a better chance for financial success in the future.

Plus, once you see your savings building up, it will encourage you to find ways to increase your percentage of savings over time. So don’t wait – just start. 

It’s no secret that taxes can always account for a significant chunk of your earnings as a freelancer, so understanding how taxation works is an important step to take in order to ensure maximum returns for retirement.

Studies show that 90% of people cannot answer straightforward tax questions, so what does that mean for you as a freelancer? You’re responsible for paying your own taxes, which means you have to be ahead of the game when it comes to understanding them. If you don’t plan appropriately, you could end up owing big time at the end of the year, which could dip into your savings.

Before taking on any job, devise a tax plan that allows you to file reliable income statements and keep track of things like deductions and money set aside for regular tax payments. One of the best ways to stay on top of your finances is to plan quarterly tax audits. This way, you are more likely to adhere to the stipulated deadlines and be aware of any other extra costs incurred due to changes in the law that tax experts may know about. 

Also, remember that taxes tend to increase with the level of your income. In addition, you pay an extra 15% on top of your normal tax rate just by being a freelancer. Plus, how you file your taxes may vary depending on whether you’re a sole proprietor, LLC, or corporation. 

So managing those finances carefully will certainly help you not only play it safe with the IRS but also help you save more money for retirement. The more you understand these things, the better equipped you will be to save!

With good preparation, there’s no reason why freelancers shouldn’t be able to find ways of enjoying the financial freedom they crave by preparing well for retirement by understanding how taxes work. 

An IRA is an Individual Retirement Account that allows freelancers to save and invest money for retirement. It’s a type of savings vehicle specifically designed to provide a tax-advantaged way of investing and saving for retirement, thus allowing freelancers to secure their financial future. 

Basically, when you make an individual contribution with after-tax funds, your earnings are sheltered from much of the federal taxation. Depending on the type of IRA you open, contributions can be tax-deductible or taxed when they are withdrawn at retirement age; in either case, retirees often see significant long-term benefits because it reduces immediate taxes and allows more money to stay within the account for additional growth potential.

An IRA works by contributing money into the account which will then be invested in assets like stocks or bonds, but depending on the plan type the money can be invested in alternative investments as well. 

There are several options to choose from, and for freelancers and independent contractors, three of the most popular types of retirement accounts are the Roth IRA, Traditional IRA, and SEP IRA. 

The major difference between the three is how they’re taxed Both a traditional and Roth IRA can be set up using a bank or brokerage firm. However, a Roth IRA grows tax-free with contributions made from after-tax dollars and withdrawals are also tax-free when requirements for age 59 1/2 are met, while a Traditional IRA is funded before taxes and earnings grow tax-deferred until withdrawal at which point taxes will be applied. 

A SEP IRA can be used in connection with a Traditional or Roth IRA, but only if you are a business owner or self-employed. With this type of IRA, contributions aren’t paid with income taxes but are allowed as a deduction when filing with the IRS. 

Ultimately the choice of retirement account comes down to personal preference with each having its own advantages, so it’s important to carefully consider all aspects before making a decision. 

No matter which one you choose (we are not professionals and this is not legal advice), you don’t have to try to navigate it all on your own. While we here at School for Freelancers are not tax professionals and therefore cannot offer legal advice, we know someone who can help your retirement plans back in your hands.

Wealthfront offers amazing returns and is, in my opinion, the easiest way to build wealth and manage your retirement as a freelancer. We recommend this to all of our students and they love it as much as we do.

If you’re still not convinced that this is the right path for you to start planning your retirement, then feel free to use this link to get your first $5k managed for FREE!

Retirement planning can feel daunting, especially for freelancers who don’t have an employer retirement plan to help them save. But it’s important to start somewhere, even if it’s just setting aside a small amount each month. Additionally, make sure you understand your taxes so you’re not caught off guard come tax season. And finally, consider an IRA as a way to save for retirement. 

These tips for saving for retirement as a freelancer could make all the difference in the number of zeros in your bank account at the end of your freelancing career. It might seem like a lot of work now, but taking these steps will pay off in the long run when you have a solid retirement savings plan in place. You are in control of every aspect of your finances as a freelancer, so it’s important to make every move count!

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