Freelance Writers *Can* Retire: 4 Simple Saving Steps

Carol Tice

Freelance writer saves for retirementBy Abby Hayes

Are you saving for retirement?

Without employer matches and helpful HR departments to rely on, we freelance writers are on our own for retirement planning.

No matter what your personal situation looks like, a smart freelancer needs to plan for retirement just like we plan for taxes, marketing, and other business-related costs.

With these steps, you’ll be well on your way to saving what you need for retirement. And that tax bill may be smaller, too.

1. Set goals by age

Instead of setting a seemingly impossible end goal for your retirement savings, focus on reaching smaller goals by a certain age. Fidelity suggests saving 1X your average annual income by the age of 35, 3X your salary by 45, and 4X your salary by 55.

Breaking down your goals this way means you’re more likely to stay on track.

2. Use the right account

Many freelancers mistakenly think that their best retirement savings option is a traditional or Roth IRA with a low $5,500-$6,500 contribution limit. But, actually, there are much better options around for US-based and US-expat freelancers, including the following:

  • Solo 401(k): Choose tax savings now or later with both traditional and Roth options. A traditional IRA lets you tax-shelter money now, where a Roth will let you withdraw it tax-free at retirement. Limits are subject to change, but in 2014 you can contribute up to $17,500 (plus an extra $5,500 for those 50 and older) as an “employee,” and then add up to 25 percent of your net self-employment income up to an overall limit of $52,000, not including over-50 “catch-up” contributions.
  • SEP-IRA: In this more streamlined account, you can save up to 25 percent of your net self-employment earnings, up to an overall limit of $52,000 in 2014.
  • SIMPLE IRA: A great option for low-to-middle earning freelancers, the SIMPLE IRA lets you set aside up to $12,000 (plus an extra $2,500 for those 50 and older) in 2014. Plus, your business will add either 2 percent of your total income or a 3 percent matching contribution.

Any of these options gives you the flexibility to save much more money in years where you earn more, so you can reach your retirement goals more quickly. And if you’re in the UK, you have the option of saving in a personal pension, which offers tax relief in the form of bonus savings on contributions up to £50,000 for the 2013-14 tax year.

3. Set monthly goals

There are two ways to set monthly retirement savings goals: by dollar amount and by percentage.

If you have a fairly steady freelancing income, you can set a dollar amount goal – whether that’s $50 per month or $500 per month. In this case, set up an automatic monthly transfer to have the money wired from your checking account to your retirement savings account monthly. That way, you won’t be tempted to spend it!

But if you’re like many freelancers, your income is a bit of a roller coaster. In this case, consider setting a percentage-based goal – like 5-20 percent of your income. Then, get in the habit of automatically transferring that percentage of every single payment you get into your retirement savings account. Again, when you build this habit, you won’t be tempted to spend your retirement savings.

4. Kick in additional year-end contributions

Retirement savings contributions are a great way to save on taxes for both US and UK freelancers. If you find that you’ve got some money lying around at the end of the year, consider kicking some of it into your retirement fund.

In the US, the additional tax savings could mean that you write Uncle Sam a much smaller end-of-year tax payment. In the UK, the more you max out your personal pension contributions for the year, the more tax relief will grow your retirement savings for you.

Abby Hayes blogs about the intersection of freelancing and money at Finance for Freelance, and is the author of 47 Money Saving Tax Deductions for Freelancers, a guide to help freelancers squeeze out more savings at tax time.

Freelance Business Bootcamp

48 Comments

  1. Tom B.

    A little 401k, a little CD, a little bank, a little gold, a little silver, a LOT of Food, water, and ammo, a generator+gas. Just refinanced to a 15 yr mortgage at 2.75%, I’m still working at my crappy job until my writing improves, but I’ve now got my sights set on my first rental of some kind, maybe a condo or apartment, but a trailer park?……now that’s interesting.

    • Mike Johnson

      Hi Tom,

      Based on your prepping, I can see you have used your writer’s, pro-active research skills for your own benefit. You’re obviously looking deeper than the drivel the mainstream media is feeding the masses.

      A wonderful, free resource for creative real estate investment is CREOnline.com . They post hundreds of free how-to articles and success stories written by people (including me) who are successfully making money with all types of income property.
      Good luck with your writing and income streams!
      MJ

    • Tom B.

      Thank you Mike, I’ll check it out.

  2. Hiten Vyas

    Hi Abby,

    This is wonderful advice on how we can practically start saving for our retirement, while reducing the overall tax we pay.

    Thank you.

    • Abby Hayes

      Thanks, Hiten. Glad I could be of service.

  3. Nadia McDonald

    Sarita can you please send me your website address? The information is very timely and pertinent.

    • Sarita

      Hi Nadia,

      I don’t really write about financial stuff for my own blog, but I just started writing about what it’s like to live off the grid at http://www.avamum.com.

Trackbacks/Pingbacks

  1. Freelance Writers *Can* Retire: 4 Simple Saving Steps - […] View post: Freelance Writers *Can* Retire: 4 Simple Saving Steps […]

Related Posts

You CAN Write a Query Letter That Gets a “Yes”: 5 Resources

Freelance writer getting a gig after learning to write a query letter.

Love them or hate them, queries are one of the most important marketing tools for any freelancer who wants to write for magazines. And the skills you learn from writing a good query letter also help business writers and copywriters pitch their potential clients.

If you’ve been sending queries off into space and never getting a reply, you may think it’s impossible to break into new magazines. But it’s not true! Editors are always looking for new talent.

To help you learn to write a query letter that will get you the gig, we’ve pulled together a collection of five of our best posts on pitching:

Can’t Write? Try These 9 Ideas for Writing Motivation

It’s the bane of every freelance writer’s life: You know you need to sit yourself down and get some writing done, but nothing happens. The writing motivation just isn’t there. Sometimes, you can't even make yourself sit down with the computer -- even if you...