How to Plan for Retirement When You’re the Boss
By Elizabeth Whalen
- PUBLISHED January 14
- 4 MINUTE READ
It’s your first day at a new job. Before you actually get to work, you’ll probably start by filling out paperwork. One form will likely ask you how much you’d like to contribute to a retirement plan, such as a 401(k). Some employers even automatically deduct a set amount unless you actively opt out, and some match your contributions, increasing your savings.
But if you’re a freelancer or otherwise self-employed, saving for retirement—just like paying for health insurance—is entirely up to you. It might sound daunting, and you might be tempted to put it off. If so, you’re not alone: Fewer than one-third of gig workers are saving regularly for retirement.
The earlier you start saving for retirement, whether as a freelancer or employee, the more you’ll have in the end. Start planning by following these not-so-daunting steps.
Explore Your Options
There are plenty of ways to save for retirement, even without an employer-sponsored plan. Options include traditional and Roth IRAs, solo 401(k)s, SEPs and SIMPLE IRAs. They differ in terms their unique tax benefits and how much you’re allowed to contribute each year.
In each kind of account, the maximum annual contributions vary based on your income and your age. For example, if you’re under 50, your combined contributions to traditional and Roth IRAs cannot exceed $5,500 a year, but the max contribution for a SEP is $55,000, regardless of your age. Maximums also change every few years, so check them annually, especially as your income grows.
Structure Your Savings
It’s smart to set up automatic savings, but it can be difficult to commit to a set amount every month if you’re paid irregularly or have periods when you’re not working as much.
Try setting up a small, automatic contribution and make larger contributions every quarter or every time you receive a payment over a certain amount. If one of your income streams is fairly predictable, consider dedicating all or some of it to your retirement savings. Regardless of how you save, you should try to devote between 10% and 20% of your income to retirement.
You can build your savings even more by transferring them to a high yield savings account. Interest rates on some accounts are far higher than traditional savings accounts, and your money can benefit from compound interest in one of these accounts.
Build a Flexible Emergency Fund
Given the often feast-or-famine nature of gig work, your financial plan should start with an emergency fund. Tally up all your essential monthly living costs and multiple that amount by six. That’s how much cash you should have on hand in case you have an emergency or you’re unable to work.
If you have more saved, that’s great, but you also don’t want too much cash lying around that isn’t earning. Research the right bank accounts and investment options to house a six-month emergency fund, and up to a year’s worth of savings. Remember that returns on savings accounts or certificates of deposit can add up significantly over time, so do a little research to find the best rates.
Elizabeth Whalen is a freelance writer based in Berkeley, CA. She loves writing about business, financial services and sustainability.
If you’re self-employed, are you saving for retirement? Learn about IRA CDs from Synchrony Bank as a way to save.