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Retiring used to be a foregone conclusion. Back in the day, you got a job at a single company. From there, you signed up for their 401(k) package, had predictable Social Security benefits, and may have even had a pension to boot.
Over time, these luxuries have slowly been stripped from the modern employee. Pensions are a thing of the past. Social Security is anything but certain over the long-term. And 401(k)s are still common perks — for full-time employees, that is. However, the meteoric rise of the gig economy has created a massive pool of tens of millions of self-employed individuals who lack even this basic retirement staple as an option for their financial future.
If you’re a freelancer, the challenge of retirement has been placed squarely in your own hands. While this can feel overwhelming, it can also be a blessing in disguise. Being faced with the specter of working until you die is a powerful motivator. It can help you take retirement seriously at an age when many are hardly thinking beyond paying tomorrow’s utility bills.
All that said, here are a few tips to help you get started with your own, unique freelance-backed retirement plan.
Start by Gauging Your Situation
The first step in long-term financial success is establishing short-term financial stability. So start the process by stepping back and considering your current freelancing financial status. Ask yourself two important questions:
What Do You Have?
You can’t save for the future if you don’t understand what you have in the present. Do you have a thought-out financial system in place? Have you saved an emergency fund for when you’re in between clients? Do you have healthy spending habits that help you live within your means?
Additionally, consider the debts that you currently have. How can you manage them? You don’t want to save for retirement only to have to declare bankruptcy along the way. Consider alternatives, such as paying down your debt, researching relief and forgiveness programs, and creating a debt management plan.
You should also identify your wants versus your needs. Set up a clear budget and make sure you can save money right now. Consider adopting the 50/30/20 rule (50% of income for fixed costs, 30% for flexible expenses, 20% for savings). Having a savings structure is important, as you must be able to contribute consistently and often if you want your retirement savings to add up.
What Do You Want?
Once you understand your current short-term situation, it’s time to make plans for the future. The goal here should be to set definitive yet flexible goals.
If you make your retirement goal to simply “get as much money saved as you can,” you’re setting yourself up for disappointment. Open-ended money goals like these cannot be reached. Literally. However, they can very easily feed a general feeling of failure. Without a goal, you might save a million dollars for retirement and feel discouraged that it’s not two million.
At the same time, you need the flexibility to help you navigate your approach to retirement as your situation changes over the decades.
So ask yourself what it is that you want out of retirement. For many, saving for retirement as a freelancer simply equates to achieving financial independence. For others, it means not having to work. Do you want to travel? Do you need to live opulently or is a frugal existence sufficient? Figure out what it is that you’re saving for.
Consider Your Long-Term Saving Options
Now it’s time to consider how you can get to your long-term savings goals. A few suggestions include:
● Opening an IRA: a self-directed IRA puts you in the driver’s seat of your long-term savings. It also gives you the ability to save in a 401(k) manner, enabling you to avoid commissions, fees, and other expenses as you invest in your future. If you also want to take the time to set up an SEP IRA or Solo 401(k), as a self-employed individual, you may be able to do so.
● Learning to trade stocks: IRAs are great, but they often have investing limits. If you meet these, you can also begin learning to invest in stocks on your own. If the idea of buying stocks sounds intimidating, you can look into purchasing ETFs and mutual funds that spread the risk out for you.
● Investing in real estate: Owning a house and land means you’ll have assets that will continue to maintain value as you age. If you want to become a landlord, you can establish a form of semi-passive income, too.
Ideally, you should establish multiple streams of income that are focused on your retirement. This spreads your eggs out into different baskets and gives you a better shot at achieving your goals.
Conquering Retirement as a Freelancer
If you’re a freelancer or you’re thinking of freelancing, retirement is often a factor that can feel daunting at the best of times. However, as with all things freelance-related, once you make the leap, you’ll likely find that you actually have a much greater degree of control over your financial future.
Take advantage of that independence by reviewing your current situation, gauging your retirement goals, and ultimately charting the path to reach them through your freelance career.