Being self-employed can definitely come with a lot of benefits.
It provides you with freedom.
You can choose to work on projects that you are passionate about. You can make your own schedule and work anywhere in the world.
One downside of being self-employed is that you are responsible for 100% of your retirement savings. Saving for retirement is crucial and if you’re not saving as a self-employed person, you are missing out on the value of compounding.
But, that’s what we’re here for! If you are self-employed, here are five tips to help you start saving for retirement.
5 Tips to Help You Save for Retirement
Tip 1: Choose the Right Retirement Plan
The first tip is to choose the right retirement plan or plans for you. There are a few accounts to choose from as a self-employed worker.
- Traditional or Roth IRA
- Solo 401(k)
- SEP IRA
- SIMPLE IRA
- Personal Brokerage
You can open as many of these accounts as you’d like for your retirement. When deciding which account is best, make sure you understand the following:
- Eligibility requirements
- Contribution limits
- Early withdrawal fees
- Penalties
Consider these factors when choosing a retirement plan. You will want to compare the negatives and positives of each account.
Tip 2: Maximize Your Contributions
Always make sure you maximize your contributions for retirement.
When it comes to retirement accounts, many have contribution limits. If you want to plan for your retirement, taking advantage of the full limit is to your best benefit.
Different accounts have different limits. For example, a Roth IRA has a contribution limit of $7,000 for 2024 (If you’re under 50 – $8,000 if you’re over 50). These limits can change each year, but your brokerage account will help you stay up to date on this limit. So, try to invest the full amount you can in your Roth IRA.
Make sure to take advantage of any retirement account you can!
Certain accounts allow you to contribute at any income level, while others have income caps. If you are able to invest a certain amount for your retirement, make sure you’re opening those accounts.
Tip 3: Start Saving Early
One of the best ways to save for retirement is to have started yesterday.
This may look like a typo, but it isn’t. Start today if you didn’t start yesterday. Saving early for your retirement will give you huge benefits.
The younger the age you start to save for retirement, the more time your account has to grow. This is due to the power of compound interest.
When you first start to invest, 5% growth on $7,000 isn’t much. But this compounds. If your account grows at a steady rate, your 5% growth can start to add up.
For example, say you invest that $7,000 in a High-Yield Savings Account at 4.75%.
Even if you don’t invest anything else and let it sit there, compound interest will earn you $1,069.80 if compounded monthly over 3 years. If you leave it for 10 years, that’s an extra $4,245.55 just on interest.
Finding a strategy for budgeting and saving for retirement will allow you to start saving as early as you can. Make retirement saving a priority in your budget. Make that priority even more specific by strategizing how to max out your annual contribution limits.
Tip 4: Monitor and Manage Your Retirement Savings
After you’ve decided on your accounts and savings strategy, it’s just as important to monitor and manage your retirement savings.
This is a step that is usually not focused on as much. Saving the money and putting it into an account is just one part.
When you save for retirement, you’re usually opening a type of investment account.
Investments grow over time, and different choices can be made to help your money grow even more. You will need to understand your investment options and manage your risks.
You will have different life-changing events that can change your strategy throughout your life. For example, having children or moving up in your career can have an impact on your retirement savings strategies. As a result, you may have to adjust your savings plan.
Tip 5: Seek Professional Advice
If saving and investing are new to you, seeking professional advice can be a huge benefit.
A financial advisor specializing in working with self-employed individuals can give you proper guidance and advice regarding your retirement.
A financial advisor can help you develop a retirement savings plan and explain the different accounts you can open for retirement.
Always find a reputable financial advisor who has the experience to match your needs.
5 Scam-Free Ways to Help You Find a Financial Advisor
Retirement Saving When You’re Self Employed
With the freedom of self-employment also comes the responsibility of taking more responsibility for your finances, specifically your retirement.
There are a number of accounts to open, strategies to have, and management types. But, at the end of the day, the most important thing is to start saving for retirement as early as possible.
Editor’s note: This article was originally published Mar 14, 2023 and has been updated to improve reader experience.
