6 Retirement Planning Tips for Freelancers


Last Updated on September 25, 2021

If you’re a freelancer, planning for retirement can be scary. There’s no one there to back you with a pension or a matching 401(k) plan, and you have to make all your retirement and investment decisions on your own. And even though you’re probably making a higher hourly wage than you would if you were employed full-time – between $20 and $59 per hour for most freelancers, according to the 2012 Freelance Industry Report – retirement savings and other overhead costs can cut out a chunk of your take home pay.

So even though you’re required to pay Social Security if you file taxes as an independent contractor, you definitely need to plan for retirement in other ways, too. (Who knows what the Social Security situation will even be when you’re ready to retire?)

These six tips will help make retirement planning a little easier:

1. Start with professional advice

The best place to begin when it comes to retirement planning is with a professional. A financial advisor will be able to help you set a retirement savings goal. Calculating that goal can actually be quite tricky, so I don’t advise trying to do it on your own.

Finding a financial advisor who suits your goals and level of knowledge can take time. Do your research before you meet with someone. The main thing to ensure, though, is that your financial advisor isn’t just out to make a commission by selling you financial products. Instead, you want an advisor who will act like an educator by helping you really understand where your money is going and how to make it work for you.

2. Consider paying down debts first

Different finance gurus have different opinions on how you should handle debt when it comes to saving for retirement. But one thing’s for sure: if you’re carrying around loads of high-interest credit card debt, you’re paying a lot more in interest than you will be earning in interest on your retirement accounts.

You may not want to pay off all your student loans and low interest debts before saving for retirement, but it’s a good idea to pay down your credit cards. When you do use credit, try to pay it off ASAP to save money in interest charges. You can also check out low interest credit cards for a balance transfer.

Even if you’re raring to get started on saving for retirement, you’ll just be spinning your wheels if you’re paying several hundred or even thousand bucks in interest on higher-interest accounts every year.

3. Make it a habit

Once you’re ready to start saving for retirement ready (as soon as possible.), make a habit of paying yourself first. Every time you get paid, set aside a certain percentage of the money for retirement. Whether this goal starts out at 5%, 10% or even 15% doesn’t matter as much as just making a habit of saving.

With that said, you most likely won’t be prepared for retirement if you’re only saving at a rate of 5%, especially since there’s no company match available for a freelancer’s retirement savings. So bump your savings goal up towards 15% as soon as you can.

4. Have life insurance

If life insurance isn’t already part of your planning, it should be. If you have a family, it’s especially important that you have some sort of life insurance to cover expenses, debt, and lost income should something happen to you.

But don’t worry about using whole life insurance as some sort of savings vehicle. Instead, consider investing in cheaper term life insurance for a fifteen or twenty year term, depending on how long you’ll need to be insured (hint: the younger your children are or the more debts you have, the longer you’ll need life insurance.). Then, kick the money you save by getting more affordable life insurance into your retirement savings account.

5. Diversify your investments

One good thing about investing for your retirement entirely on your own is that you’ll get more control over where your money is invested. Not only do you get to choose the type of account that you invest in, but you can also choose where your investments are made through your retirement account. As with any type of investing, it’s important that you diversify to give your investments more stability and earning potential over the long run.

Here’s where you need to talk to a financial advisor. And don’t just look at the type of account, either. Also make sure you understand where your money is being invested. Most financial gurus suggest investing in mutual funds with a good long track record.

6. Save for emergencies, too

Finally, while your head is spinning with retirement savings options and to-dos, be sure to think about an emergency fund, too. All too often, freelancers are caught in a dry spell or a financial emergency without any back up. If you’ve been diligent about saving for retirement but have no emergency fund, you may be tempted to withdraw from your retirement account to cover the emergency.

But beware. This can be incredibly complex and costly in the long run. The better option is to simply set aside an emergency fund of three to six months’ worth of expenses in an easily accessible money market savings account from a local bank. That way when an emergency hits, you’ll be more than prepared to take care of it.

Planning for retirement as a freelancer is much more complex than retirement planning as an employee, but with these tips, you can make a plan, follow it, and enjoy your Golden Years when you finally decide to hang up the freelance career.

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