Why Most Freelancers Don’t Save Enough Money for Comfortable Retirement

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By Jacob Maslow

There are several benefits of working as a freelancer. You get to choose your schedule, be your own boss, and rest on the days you choose. But there are drawbacks too. One of them is having to sort out your retirement plan.

If you earn a living from gigs or freelancing, saving for retirement might be a foreign concept. It may sound like something other people do. But getting your finances in order is essential for your future. Apart from building an emergency fund, starting a retirement savings plan is the next step to safeguarding your future.

Here are a few obstacles that may hinder you from saving enough for retirement

Irregular work and income

Though some freelancers work full-time, others can sometimes go for periods without getting work. It is tough to think of saving when you have immediate responsibilities. For this reason, many freelancers continue to put off saving. When they eventually start, it is not early enough. Therefore, they are not able to save as much as they should. One way to tackle this is by setting a goal and sticking to it.

Affordability problem

Some freelancers or gig workers make only enough money to get by. Planning your finances might be challenging if you are a gig worker living paycheck to paycheck. However, the first step to tackling this problem is determining your average income within a specified period. It will enable you to plan effectively. You will determine how to cut expenses, pay off debts, and build an emergency fund. Your finances must be correctly organized before you can effectively start retirement savings.

Lack of insurance

A major drawback of working as a freelancer is the lack of employee benefits. One of which is health or injury insurance. If a freelance suddenly gets sick or injured, they are fully responsible for the financial implications. If unprepared, this eats into their savings or makes it harder to set money aside for the future. That is why as a freelancer, you must get insured for your finances. It will eradicate any financial burden when you get sick or injured. There are affordable health plans that you can buy to protect yourself.

Having to pay off debt

If you are a freelancer and in debt, saving can be nearly impossible. Whether it’s a credit card debt, a car, or a student loan, paying it off while saving can be tough. You may feel you must take care of the debt before starting any savings. However, you can deal with this problem by first paying off the high-interest debts. The low-interest debts are managed while you save for retirement.

Lack of information about the right retirement plan for freelancers

If you work full-time, various plans involve the employer’s contributions to your retirement savings. A freelancer may not know the options available. Some may not even know about freelancer retirement plans. Examples of suitable retirement plans for freelancers and self-employed persons are the Solo 401(k) and SEP IRA.

Tips to save enough for retirement as a freelancer

Here are a few suggestions to save enough for your retirement:

1. Set up an emergency fund first

An emergency fund is as important as a retirement plan. Your business is your full responsibility. If there is no work or profit, you earn zero income. That is why you’re income is irregular compared to an employee’s. A salary-based individual can easily budget their predetermined income. Not so for a freelancer. Therefore, an emergency fund should come first for you. Setting up an ideal emergency fund can take time. But little is better than zero. Build the funds till it amounts to 3 to 6 months’ income.

2. Save to cover your taxes

Your taxes are your responsibility if you are self-employed. It is better to pay regularly to avoid problems in the future. Many business owners save a percentage of their monthly income to cover taxes. They then file it quarterly. If you are unfamiliar with tax regulations for freelancers in your state, you should consult a professional.

3. Open a retirement savings account

As mentioned, there are several retirement savings options for freelancers. After you build your emergency fund and prepare your taxes, it is time to start saving. Banks or brokerage firms will offer individual retirement plans. The amount you set aside periodically will depend on your income and age. It is always better to start early. But the best time to start is now. Some accounts are tax deductible. But in most cases, the tax gets deducted when you retire.

How to manage your retirement fund

Saving for retirement is essential as soon as you start getting gigs. Even if the work is irregular and challenging, starting now will benefit you through compound interest.

Once your savings start to grow, you can seek the help of a professional. They will help you determine the best way to allocate your savings.

There are Robo-Advisors online offering low-cost financial advice. Through their help, you can get good retirement planning recommendations. They also help plan and manage the portfolio and are more affordable than human investment professionals.

Bottom line

As a freelancer, planning your retirement is your full responsibility. Therefore, you must start early. Avoid “paying yourself last” by saving only what is left of your income monthly. Set goals. Develop a plan and set aside a percentage of your income every time you get a gig. Once you have opened a retirement account, “pay your future self first” whenever you earn. You will thank yourself later for committing to your retirement plan.


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