Retirement Savings on a Variable Income: Advice From Fellow Freelancers

By Liz Alton, Contributor, on April 20, 2018

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We all know the feeling: Between student loans, mortgage payments and other factors, retirement savings often fall behind our day-to-day expenses. Add in the variable income that comes with a freelance lifestyle, and saving for your future becomes even more complicated.

If you’re like many people, 401k and IRA balances only come to mind once a year when you plug in your age, current savings level and target retirement date into a retirement calculator. Pew Trust notes that 42 percent of Americans don’t have access to an employer plan, but all hope is not lost: It just takes planning, strategy and the right tools to achieve your goals. Oftentimes, it helps to hear advice from others who have been there, done that. I talked to seven freelancers to get their insights and strategies for saving for retirement.

Everyone Comes From a Different Place

Conversations around saving for retirement can sometimes feel like they’re conducted with rose-tinted glasses: Set aside 15 percent of your income and move on. But it’s important to acknowledge that this process is different for every person. When you’re just launching your freelance career, it can be hard to save.

“Unfortunately, I’m still at the point where I’m getting started and have to concentrate on my bills,” says Babette, a freelance copy editor. Over time, her plans include ramping up retirement savings as her income allows. Still, she says, “It’s motivating to start, even with something small.”

Babette’s not alone. As Forbes reports, a 2016 national scientific poll conducted by Greenberg Quinlan Rosner Research found that at least 40 percent of freelancer participants did not have a formalized retirement plan in place. Further, 52 percent of respondents claimed that they saw the lack of employer-sponsored retirement plans as an obstacle to going freelance.

Shift Your Perspective on Retirement

What is retirement for a freelancer? As freelance virtual assistant, Karen, notes, “I don’t even know what retirement means at this point, because I can’t imagine not working. And with any luck, I’ll be able to continue working as long as I want to.”

Leaving the traditional corporate structure means that you’re not necessarily destined for a gold watch and retirement party. Instead, you’ll have to define what retirement means for you, and factor that into your plans. But you can’t necessarily bank on working until you’re 80, either. Health, the economy and life circumstances can get in the way — so it’s important to be realistic.

Treat It Like a Benefit

Would you work for an employer that didn’t offer retirement benefits? If the answer’s no, then you should take steps to become a decent employer to yourself.

Eli, a freelance programmer, says: “It’s actually more profitable for me to be freelance than to work in-house. However, one thing that I’ve had to do is build my own benefits package, and retirement was a big one. I talked to an accountant about how to choose the account that would maximize my tax savings, including setting a goal. In my mind, those saved tax dollars are like an employer match, so putting that income away is a big motivator.”

Boost Your Income to Boost Your Savings

Saving for retirement was a big deal for Craig, a freelance data consultant. “When [my wife and I] sat down and figured out how much we wanted to save beyond our current levels, we worked out a plan. I took on an extra project that works out to about 10 hours per month. After taxes, that money goes straight to retirement. My wife is a freelancer, as well, and she takes on ‘retirement projects’ to pump up her contributions throughout the year,” says Craig.

Boosting your retirement income can sometimes be as simple as increasing your cash flow and choosing retirement as a top priority.

Automate, Automate, Automate

James, a freelance medical tech, knows the secret to automating his savings. “When I switched from a job with a 401k match, I didn’t immediately invest in retirement. As my freelance income got where it needed to be, I needed to figure out a plan that worked. My sporadic attempts at saving didn’t amount to much. I decided on a percentage that I wanted to put away annually, and then arranged to transfer that much automatically into an SEP retirement plan,” says James. “Automation is 100 percent the key to my success.”

Look at the Big Financial Picture

How do retirement savings fit into your overall financial picture? Cheryl, an independent financial project manager, says: “For us, it was about determining how saving — or not saving — for retirement impacts the bottom line. My wife is a very high earner, so every dollar saved for retirement is critical to our taxes and overall financial picture. As a freelancer, understanding how that contributed to our bigger picture helped me make specific decisions about how much to save.”

However, that shifted when the couple decided to buy a house. “About a year ago, I slowed down on retirement savings to give us the liquid cash for a down payment,” says Cheryl. “Assess how your needs change over time.”

Leverage Multiple Savings Vehicles

Robert, a freelance technology worker, has found that it’s critical to leverage multiple savings vehicles. “For a long time, I was just maxing out my IRA. However, I found out that there are other options I wasn’t using, like a small business 401K, and I was actually leaving a lot of money on the table.” If you have the income, consider diversifying your savings into multiple retirement accounts.

There’s no one way to tackle retirement as a freelancer, but boosting your retirement savings is a critical goal at every age. Make more, save more and find more security — no matter how you choose to spend your retirement years.

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