People often dream of being able to work for themselves – having the freedom to manage their own time, choose projects they enjoy, work from anywhere, and pursue other hobbies in their spare time. For many, this type of work setup brings a better work-life balance and less stress than traditional careers. However, even though being able to better control personal and professional life, there is one thing that remains constant – retirement planning.
No matter what profession or work style individuals pursue, investing in future financial health is crucial. For freelancers, exploring various wealth management solutions is essential to ensuring a comfortable, secure, and worry-free retirement life.
Transitioning from the corporate world to freelancing means losing benefits provided by employers such as 401(k) matching, which can be unsettling. However, while you may take on the responsibility of increasing retirement funds on your own, you will have more opportunities to invest and contribute to various accounts.
According to data from the Alliance for Lifetime Income, by 2027, 4.1 million Americans will turn 65 every year, approximately 11,200 people a day. Historically, this milestone age marks retirement – you can shut down the computer, pack your bags, and relax on a beach. For many freelancers, 65 often arrives and passes by quietly.
Due to declining birth rates, demographic changes, labor shortages, and the continued impact of the 2008 economic recession and the COVID-19 pandemic, retirement timelines and methods have changed. However, the massive retirement of the 76 million baby boomers in the United States – 10,000 people every day – has led to a 5% to 10% labor shortage, interestingly having a negative ripple effect on freelancers.
Freelancers rely on a stable economic environment – labor fluctuations can change consumer behavior, project demands, rates, and services, limiting opportunities for niche industry freelancers. Therefore, you must be more proactive in developing and adjusting your retirement plan to maintain financial security.
Calculate the living expenses of retired Americans. According to a 2022 Employee Benefit Research Institute briefing, nearly 50% of retirees spend less than $2,000 a month, while one-third spend between $2,000 and $3,999 a month. A third of their savings is typically spent on housing, followed by food expenses. Additionally, 27% of retirees admit their spending exceeds their ability to bear. You need to assess if you can sustain your current lifestyle, and if not, start building and expanding your retirement investment portfolio.
Retirement has become an unattainable luxury in the United States. Freelancers must carefully plan their financial future to enjoy a comfortable life in retirement rather than continuing to work. Of course, this comes with its unique challenges.
In addition to not enjoying 401(k) retirement benefits, freelancers often have to deal with the issue of unstable income sources. For example, freelance writers or editors may receive project-based compensation from clients. Seasonal work may be even more unstable – these jobs may include tax services, holiday season content creation, or wedding photography.
Unstable income can make saving for retirement difficult, let alone covering basic living expenses and debts. Future financial planning may require you to save money during high-income periods. Likewise, you can use wealth management apps with automatic transfer features to incorporate retirement savings into your monthly budget. Be sure not to exceed your capability to avoid getting into tricky financial situations.
Do you fully understand your financial situation? This requires assessing your income sources, monthly income, and expenses. During the assessment, expect expenses for housing, healthcare, and food. However, you may find areas where expenses can be cut.
For example, you may still be paying for unused subscription services, or perhaps you do not need multiple streaming services. If you frequently buy coffee or eat out, consider reducing these expenses.
Develop a cash flow management plan. Your first payments should prioritize basic living expenses, and repaying credit cards, loans, and other debts is non-negotiable – you should strive to reduce these debts gradually. Experts also recommend setting aside funds for six months to a year for emergencies and unexpected situations. After considering all factors, you will see how much money is left for retirement savings.
Understanding your financial situation will allow you to set long-term and short-term goals for your retirement journey. Freelancers must regularly reassess and budget cautiously to understand their financial situation.
Looking forward in the coming years and even decades, what level of wealth do you aim to achieve? Subsequently, set corresponding funding goals to help you achieve your aspirations. Ideally, you should invest as much as possible each year and take full advantage of all tax benefits for freelancers.
Like all goals, retirement planning should be flexible. Financial advisors can help adjust your financial strategy based on your income and schedule as a freelancer, providing wise investment advice.
When solely responsible for investments, saving for retirement may feel overwhelming. Fortunately, opportunities to build wealth are endless – below are nine strategies to help you accumulate a comfortable savings for the next stage of life.
Diversification of investments across different assets is paramount when building a retirement nest egg. A diversified portfolio helps you manage risks, increase returns, mitigate economic uncertainty, and maintain long-term financial stability. When one type of investment performs poorly, you can offset it with others.
Starting early to diversify your retirement investment portfolio is crucial. As a young freelancer, you can take more risks as you have the potential for growth in investments, meaning you can still achieve financial goals. Conversely, as you age, you will want to move away from high-risk investments to ensure your savings can sustain your late-life.
Traditional Individual Retirement Accounts (IRA) and Roth Individual Retirement Accounts (Roth IRA) are excellent retirement choices for freelancers.
Investing in a traditional IRA offers tax-deferred growth with tax-deductible contributions, where investment earnings accumulate tax-deferred until withdrawal, which is then taxed at your income rate. On the other hand, a Roth IRA involves after-tax contributions, facilitating tax-free growth and withdrawals, providing more opportunities for freelancers in higher tax brackets.
Both plans have annual contribution limits, usually increasing each year. In 2024, the limit is $7,000, with individuals aged 50 and above allowed up to $8,000. However, these are maximum limits; you can decide how much to contribute monthly based on your capacity. Traditional IRA and Roth IRA are not the only account types you can open.
Freelancers can also consider a Simplified Employee Pension-IRA (SEP-IRA) and Self-Directed Individual Retirement Account to maximize retirement benefits potential.
Real estate has long been seen as the gold standard for retirement investments. Freelancers can purchase properties and generate passive income through renting. Furthermore, the longer you hold the property, the more net assets you accumulate, providing you with stronger financial health and security in retirement.
However, the real estate market is unpredictable, especially in today’s high-interest-rate environment. As of August 2023, the Federal Reserve raised rates to 5.25% to curb inflation, directly affecting mortgage repayments for buyers, forcing them to pay more monthly.
Unfortunately, rates have not decreased. As of January 2025, the 30-year fixed-rate is still above 7%, remaining relatively stable compared to October 2024.
Does this mean that real estate investments should be avoided altogether? Nonetheless, real estate remains an excellent opportunity for diversification in investment portfolios. You need to seize the timing based on market conditions.
Freelancers working for themselves do not receive traditional pensions, so they may need to consider purchasing annuities. An annuity provides a stable income source after retirement unaffected by market fluctuations.
You can plan annuities based on your post-retirement financial needs and expectations. Existing types of annuities include fixed annuities, variable annuities, indexed annuities, immediate annuities, and deferred annuities, each with different advantages and disadvantages to consider, including payment arrangements and flexible investment options.
For instance, fixed annuities offer a fixed rate of return. Conversely, deferred annuities allow you to defer payments, giving the investment amount more time for compound growth in a tax-deferred environment.
If you have a high-deductible health plan, you may be familiar with Health Savings Accounts (HSA). HSAs rollover annually, accumulating unused funds. These plans offer pre-tax deductible contributions, tax-free growth, and withdrawals.
Freelancers with Health Savings Accounts (HSA) can access funds for any purpose after turning 65 – crucial for covering out-of-pocket medical costs. Early withdrawals may result in income tax and other penalties.
Taxable investment accounts for freelancers include a variety of options from individual stocks to mutual funds, bonds, and Exchange-Traded Funds (ETFs). Mutual funds and ETFs are similar, allowing you to purchase mixed assets through a single investment. The real distinction lies in ETFs traded on a stock exchange.
Taxable investment accounts can serve as supplementary emergency funds and meet other financial needs post-retirement. They also provide liquidity, allowing you to withdraw funds without restrictions and penalties when needed.
Upon reaching retirement age, freelancers can begin receiving Social Security benefits or choose to delay. Delaying Social Security benefits might be a strategy to increase retirement income. The longer you defer benefits, the more ample your financial cushion for later years.
According to the Social Security Administration, you can delay receiving Social Security benefits until age 70, but you should stay updated on new laws and regulations regarding these rules. This will assist you in making wiser decisions on when to begin claiming those funds.
After retirement, you may still be able to earn passive income through your hobbies. For example, you can create and sell crafts as a hobby. These side gigs can boost your retirement savings and improve your financial situation.
If you are a freelance writer, blogging can provide money-making opportunities through monetization like affiliate marketing. Even if you are no longer fully engaged in freelance work, this is a great way to keep your skills sharp, unleash creativity.
Throughout your career, situations may arise compelling you to reevaluate your retirement plan. If freelance opportunities wane or an injury prevents you from working, you may need to pause contributions to your accounts.
At times in your life, significant expenses are inevitable. For instance, in your thirties, you may purchase your first home or car, or need to repay student loans. Many also raise children around this age, costing approximately $17,000 per child annually.
Regularly reviewing your wealth management plan is crucial for your future financial condition. Even minor differences in your investment strategy – income sources, spending habits, goals, and overall investment portfolio – may require adjustments to maximize your savings.
If your budget is tight, hiring a financial advisor may be costly, but if your budget permits, visiting one could be beneficial. Advisors offer professional financial advice to help you navigate complex issues, make wise investments, and address complex tax regulations. They have various tools and resources to optimize the protection of future finances.
Financial advisors will tailor a comprehensive retirement plan based on your financial situation as a freelancer, retirement goals, and related risks. These plans may also involve current financial status and goals, such as homeownership or tuition payments.
Most importantly, financial advisors possess valuable knowledge about market fluctuations, the latest investment options, and evolving policies. Even if you cannot consult a financial advisor early in your career, you should schedule a visit as retirement nears – they can assess your financial status and help you achieve your goals.
If you cannot afford a financial advisor, the best option is to use online platforms for retirement planning. Countless applications and online resources are available for budgeting expenses, allocating assets for the future, and analyzing investment opportunities. Understanding the fund needed for a comfortable post-retirement life is a good starting point.
Retirement calculators enable you to input current income, age, monthly contributions, etc., to determine the monthly budget post-retirement. With changes in income and investments, regularly reuse this calculator to see if you are still on track.
Reading online about retirement plans and investment strategies, and participating in personal finance seminars can enhance your knowledge. Your community may also provide low-cost live workshops or financial planning assistance. Freelancer forums are a great place to interact with peers and learn how they are preparing financially for the future.
Freelancing differs significantly from working for others, so different approaches need to be taken in retirement savings. When preparing for the next stage of life, you should focus on accumulating a substantial savings, save as much as possible, and transfer income to retirement accounts for preparedness.
The original text mentioned various strategies for freelancers to build a retirement nest egg. It highlighted the importance of financial planning, diversification of investments, exploring retirement accounts like IRA and Roth IRA, real estate investments, and the role of annuities and Health Savings Accounts for securing retirement income. It also stressed proactive monitoring of financial situations, setting financial goals, seeking professional advice when needed, and engaging in continuous learning about financial planning to ensure a comfortable retirement.