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A Freelancer’s Guide To Future-Proofing Retirement Plans

Freelancer Retirement Planning Tips

As of 2023, there were around 64 million freelancers in the United States. This figure is a significant increase from 2022, which recorded 60 million. The number has also been steadily growing since 2014.

Many workers generally enter the freelancing world for the following reasons:

  • To gain autonomy and flexible hours
  • To further support family needs
  • To enjoy the work
  • To diversify income sources

While freelancing offers more freedom than traditional nine-to-five jobs, the income in this profession is usually unpredictable. This uncertainty can make saving money and setting financial goals challenging, particularly for retirement plans.

Retirement planning for freelancers requires more proactive financial management approaches. Thus, this guide will help you manage your retirement goals and secure your future while freelancing.

Set Your Retirement Goals

Because of fluctuating income, freelancers must be diligent with their financial goals and budget. Your budget must acknowledge necessities while considering the inconsistency of freelancing.

It’s best to follow the 50/30/20 rule: 50 percent of your income goes to essentials, 30 percent to wants, and at least 20 percent to emergency and retirement savings. The goal is to balance the allocation to establish a structure for safeguarding retirement plans.

Once you have a budget blueprint, set retirement goals based on this framework and ensure these goals are specific, measurable, achievable, realistic, and time-bound (SMART).

  • Define your desired retirement lifestyle and estimate its potential costs
  • Regularly review your financial goals to stay aligned with the trajectory of your plans

Assess Your Current Income

Once your goals are clear, assess your current income by answering the following questions:

  • Is it high or low?
  • Is it based on your working hours or the value you create?
  • Is it fixed or temporary?

These questions will help you determine whether it’s best to invest your income into retirement funds or devote your time to generating passive income.

Investing now might be ideal if your wage is high and based on the working hours you bill clients. This way, you can live off the excess when you stop working.

In contrast, generating passive income is ideal for those with tight incomes but with talent or resources that can create lasting value. Examples include writing, website building, or owning a real estate property.

However, you can also balance these two. Technological advancements can provide investment opportunities even if you don’t have enough discretionary funds.

Start Saving as Early as Now

You can save more retirement funds if you have more time. Thus, save as early as possible if you have sufficient time before your expected retirement age.

Try not to lament about the amount you can save. You can start even if you can only save $10 monthly. Within a year, these savings will grow to $120. Remember that even the smallest amount can help you build a life of financial security.

Your financial situation can also change after a year. You can increase the money to set aside by choosing a percentage from every paycheck or save more whenever possible.

Open an Individual Retirement Account (IRA)

Individual retirement accounts, or IRAs, can be set up through private lenders like SoFi, banks, personal brokers, online brokerages, or investment companies.

You can create a traditional, Roth, SEP, or SIMPLE IRA.

  • Traditional – The most common IRA individuals choose for deductible pre-tax dollars
  • Roth – An IRA for investing after-tax dollars. You can grow your savings and withdraw it tax-free. However, contributions are not deductible
  • SEP – Traditional IRA employers open for employees and themselves
  • SIMPLE – Another traditional IRA, but for small businesses with fewer than 100 employees

If you have previously contributed to a 401(k) through an employer or on your own, you can consolidate these savings by opting to transfer 401(k) to IRA. This rollover can provide the following benefits:

  • Avoid immediate taxes while your retirement savings continue to increase tax-deferred
  • Access to more investment choices than most 401(k) plans
  • Gain more control of your money by having the ability to buy and sell anytime

Find Potential Investment Opportunities

Investing helps you grow your wealth. Different investment types can significantly impact your savings amounts, so researching opportunities is best to understand which one fits your job and lifestyle.

Some opportunities worth considering include:

  • Total Return Approach – A diverse investment portfolio acquires income through dividends, interest, and capital gains
  • Income Annuity – You’ll contribute a specific amount in whole or monthly in exchange for regular income payments based on the contract between you and your insurer
  • Diverse Bond Portfolio – Bonds from government institutions, mortgage-backed securities, and overseas markets. These bond issuers will make regular income payments based on the annual yield

Freelancer Retirement Planning Tips

Clear Your Debts

Debts can accumulate quickly, which can add more financial strain and stress. They can even damage your credit score and impair your chances of getting loan approvals.

If you have a mortgage or student debt, make on-time payments. Consider accelerating the repayments so the loans are finished before you retire.

For credit card balances, it’s better to pay them off before investing. At the same time, minimize your card purchases by bringing cash to downsize your debts. This practice will prevent you from spending some of your savings or income on interest payments.

Consider Your Retirement’s Time Horizon

Considering the time between your current and expected retirement age is crucial in establishing a future-proof retirement plan. The longer the horizon, the higher the risk your investment portfolio can weather.

For instance, you can invest in stocks if you’re young. While they generally fluctuate, they can make more than bonds. You can put more money into these investments when you invest early.

In contrast, it’s best to be careful with your savings if you’re old or close to retiring.

Account for Your Healthcare Expenses

Medical expenses can be a significant expenditure during retirement. They may quickly deplete your retirement funds because of sudden health issues or frequent hospital visits.

Thus, you must account for your healthcare expenses to avoid exhausting your funds on medical bills. 

This proactiveness can give you peace of mind and deter financial strains on potential medical issues.

It’s best to purchase a health insurance policy or open a health savings account (HSA) to access the best healthcare services.

HSA is ideal if you have high-deductible health plans, letting you save on medical costs they don’t cover. Meanwhile, a health insurance policy is a contract where your insurer covers medical expenses in exchange for monthly premiums.

Treat Your Freelance Job Like a Full-Time One

Treating freelancing like a full-time job will help you stay on track of your goals. This approach means setting regular working hours, managing clients professionally, and meeting deadlines.

Maintaining this disciplined routine helps ensure steady work and income, letting you build a trustworthy reputation and a stable client base.

Moreover, it’s wise to diversify your income. You could take on multiple projects or expand your skill set to strengthen your work experience. By not relying on a single job or client, you can establish a more stable financial foundation, securing your retirement plans.

Get Expert Advice From a Financial Advisor

Lastly, financial advisors will help you navigate complex financial decisions. Consulting one can provide personalized guidance based on your retirement goals, financial resources, and risk tolerance, helping you minimize risks and maximize savings.

Financial advisors can also offer objective financial plan adjustments based on significant life events like market changes, health issues, and career changes. They are valuable partners in achieving a financially secure retirement life.

Make Wise Choices

The financial decisions you make today lay the groundwork for your future. While embracing the autonomy of freelancing, you must also recognize the responsibility it entails for a future-proof retirement.

With discipline, you can make wise choices that ensure your freelance endeavors translate into lasting stability, ultimately securing a retirement life where you can enjoy the fruits of your hard work.

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