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07.09.2017

Six Tips to Prepare for Retirement as a Freelancer


Are you really budgeting for retirement? Have you made the time to work out what you’ll really need, and how you’re going to get there? Chances are, you haven’t. But don’t worry! These six quick tips can help you prepare for retirement without adding any extra burdens to your busy freelance schedule.

As a freelancer, you’ve probably set a goal to earn a certain amount each month. You know what your expenses are and you know what you need to be comfortable. You’ve probably even budgeted extra in case of emergencies. Chances are, though, your monthly income goal isn’t taking your retirement into consideration.



Here are six really quick tips to help you prepare for retirement without adding extra burdens to your busy freelance schedule.

1. Define Your Retirement

This is key. The main reason I initially delayed preparing for retirement is that I didn’t want the stereotypical ideal of a mansion and a yacht, so I figured I didn’t need to worry about it. I didn’t realize that retirement, fundamentally, is just financial freedom, and that it could take on whatever form I wanted to give it.

So what do you want your retirement to look like? Do you want a country home or a condo in the city? A tiny house or land in a foreign country? Do you want to be able to vacation, or volunteer, or even continue working, but at a relaxed pace? Do want it to last 10 years or 40 years? You can do anything, as long as you identify it first.

Once you have a vision, you can easily work out what your monthly and annual expenses will probably be. Remember to consider additional health-related expenses. Multiply your expenses by the number of years you expect to need it, and you’ll know exactly how much your retirement goal is, how much time you have to achieve it, and why.

2. Identify Your Strengths

Once your retirement goal is clear, take a look at your skills and your current income. Is your income high or low? Is it tied to the number of hours you work, or the amount of value you create? Is it temporary or perpetual?

By answering these questions, you can figure out whether you’re best off investing your current income into retirement funds, or devoting your time to developing value that generates passive income.

In other words, if you earn a high wage, but it’s tied to the number of hours you bill your clients (eg. lawyers, consultants), you should consider investing everything you can now, so that when you stop working and your income dries up, you can live off of today’s excess.

If, on the other hand, you’re current income is tight, but you have a talent or resource that you can leverage to create long-lasting value (eg. writing a book, starting a website, owning real estate), you should consider ways of building that passive income to a sustainable point.

For many, there can be some balance between these two. And remember that even though you may not have a lot of discretionary funds right now, technology keeps on making great investment opportunities easier for normal people.

3. Develop an Exit Plan

While you may not have the benefit of an employer contributing to your 401k as a freelancer, you have the benefit of owning equity in your business. The client relationships you’ve developed, the goodwill associated with your branding, and any equipment you may have accumulated over the years are all worth something, and instead of abandoning all this value when you stop working, consider selling your business, or parts of it.

This might mean you need to incorporate if you haven’t already (which would then also enable you to contribute to your 401k as an employer as well as an employee), but not necessarily.

4. Pay Your Taxes

Depending on the country you’re from, your social security is likely based off of your most profitable tax years. Reporting your full income now allows you to receive your maximum social security payout during your retirement years. This is not only ethical, but good for your retirement, too.

5. Clear Your High-Interest Debt

When deciding whether to invest or pay off debt, take a look at your interest rates. For high-interest debt like credit cards, it’s always better to pay those off before devoting cash to investing. The 20% interest payments you’ll be forced to make will more than cancel out your 5-10% return on an investment during that period.

Mortgage or student loan debtare probably the two kinds of debt that you don’t need to pay off before you start investing, since those interest rates should be less than what a good investment will give you. But again, it all depends on the rates.

6. Automate Your Retirement Contributions

Once you know what you want out of retirement and have a basic idea of how you’re going to get there, it’s time to actually find an investment manager that will allow you to set recurring deposits so that you can let them do the investing, while you focus on your work. Services like Wealthfront or Betterment really make it easy with simple and professional robo-advisor services.

Once you’ve decided which service is best for you, it’s as simple as scheduling recurring deposits every month (or for best results, as often as you get paid) for the amount that you’ve already determined you’ll need in order to meet your retirement goal. Many services will even help you figure out what that amount is!

If, like most freelancers, you are paid whenever you complete a project, you may not have a single date that works best for scheduling. You can get around this by using features like Betterment’s SmartDeposit, which automatically makes a deposit whenever your bank account goes over a certain threshold that you decide. That way, every time you get paid, the excess is automatically invested.

Set It Right

In conclusion, remember the importance of having a vision. Know what you want your retirement to look like, and why, and then let this inform your current month-by-month goal-setting. Take a look at your present situation to figure out whether to focus on investing or creating passive income and incorporate that into your business strategy. Consider what aspects of your work you’ll be able to sell off when you stop working. Pay attention to your taxes and your interest rates. Then, set up recurring deposits with an investment advisor you trust, and leave the rest up to them.

Your retirement plan is one of the easiest things to set and forget, as long as you take the time at the beginning to set it right. So knock it out now, and get back to work knowing that you’re making the most of your time.
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