What to do if you’re self-employed and want to retire
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I have been self-employed for more than 10 year (on a 1099). You have a great deal of flexibility and freedom as a self-employed person, but you also take on a number of responsibilities that a W2 worker might not. You are responsible for your own taxes and insurance. It can be difficult to do this without an employer sponsored 401(k). There are many things that you can do for individuals who work on their own to start planning their retirement.
1. Start Saving Early and Consistently
Saving is probably one of the most important pieces of the puzzle when it comes to retirement. Compound interest is more beneficial if you start saving early. Even if it’s only a small portion of your earnings, you will still make a big difference. Consistency is the key. If you put away 15 to 25 percent of your income on a regular basis, your savings will grow. Pro Tip: Automate your savings to pay yourself first. You can automate transfers into your retirement account.
2. Open a Self Employed Retirement Account
If your self-employment is not backed by an employer’s 401(k), you will need to save for retirement in a different way. You still have plenty of options. To maximize your tax benefits, consider opening a Solo 401 (k), SEP IRA or SIMPLE IRA. Each has its own advantages to help you maximize your retirement savings. I personally recommend the Solo (401(k)). You can contribute both as an employer and employee. You can increase your savings by a significant amount.
3. Diversify Your Investment Portfolio
While I haven’t started heavily investing yet, a diversified investment portfolio will help you reduce risk and increase your overall growth potential. Avoid investing all of your money in one asset class. Mix stocks, bonds and real estate with other investments. Consider working with a financial adviser if you are not confident in making these decisions. You can align your investment decisions with your tolerance for risk.
4. Plan for Healthcare and Long-Term Care Costs
Self-employed individuals don’t have employer-sponsored health insurance, making medical expenses a key concern. If you have a health plan with a high deductible, consider opening a Health Savings Account. Contributions are tax deductible. Consider long-term healthcare insurance to protect you from unanticipated medical costs. Medicare may not cover your medical costs in retirement. Plan for additional coverage.
5. Pay Off Debt Before Retiring
Carrying debt into retirement can drain your savings faster than expected. Pay off high-interest debts, like credit cards and personal loan, as soon as you can. Consider making extra mortgage payments before retiring. Refinancing at a lower rate of interest can allow you to save more for your retirement.
6. Establish a Sustainable Retirement Budget
Estimate your future expenses based on your desired retirement lifestyle. When planning your budget, consider housing, healthcare costs, travel and daily living expenses. Calculate how much money you will need to save using a retirement calculator. Take Control of Your Retirement Now
If retirement planning is a concern for you as a self-employed person, don’t worry! You can take many steps to ensure that you enjoy your golden years. All it takes is time and discipline. You can enjoy a comfortable retirement if you follow these tips. Read More
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