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Working for yourself has many benefits: flexible hours, cheaper – or non-existent – travel and the ability to speed up the work and compose it as you wish. It is not surprising that in a survey conducted by the Harris Poll for
TD Ameritrade
,
60% of respondents said freelancing was the modern version of the American dream.
But the freedom offered by the entertainment economy also has its disadvantages. To save for retirement, for example, isolated workers are self-reliant. In the same survey, 66% of non-traditional workers said it was harder to plan for retirement.
It is not that the self-employed do not have access to tax-deferred savings vehicles. On the contrary, they have more. In addition to saving in a Traditional Individual Retirement Account (IRA) or Roth IRA, self-employed people have the option of a Simplified Employee Pension (SEP), which allows for contributions with a deferral of not more than 25% of the income from self-employment up to a maximum of $ 56,000. That's almost three times more than the $ 19,000 maximum that traditional employees can set aside before taxes.
For most do-it-yourselfers, the savings gap is largely related to behavior. In the absence of turnkey plan and in the absence of self-registration to revive regular savings and match the benefits to soften the agreement, self-employed workers need to be proactive to conserve their savings.
The good news: supermarket workers can ask employers to set up their own savings strategies. Here's how.
Start saving already
More and more employers are making retirement savings the default option for employees – and it works. Participation rates for new employees monitored by Vanguard are almost twice as high as self-enrollment plans. "Inertia can be a major asset," said Scott Thoma, CFP and retirement strategist for Edward Jones.
Indeed, many freelancers have a lot of trouble assuming the need to develop a perfect retirement strategy before they can put money aside. There is something to be said about looking for the pros and cons of a traditional SEP versus other options, or about adjusting your portfolio according to your time horizon and to your risk profile. But do not turn these details into obstacles that will hinder what is ultimately the most important factor for saving success: time.
Read our recent cover story: How your kids can ruin your retirement and how to make sure they do not
If you already have an IRA or Roth IRA in place, this step is easy. Block 30 minutes on your calendar to find your login credentials, view your allowances and set up automatic contributions (more information about this in a minute). You may want to eventually transfer these funds into an SEP or an independent 401 (k), but this decision can be made later.
If you start from scratch, you can set up a SEP in any major brokerage company, such as Fidelity,
Charles Schwab
or TD Ameritrade, and choose a target date fund that corresponds to your approximate retirement date.
Hire a consultant, human or robot
In the absence of an employer who takes the necessary steps and encourages you to save regularly, consider using a financial advisor. A good advisor will explain the advantages and disadvantages of different account structures and investment options, and will ensure that you stay on track when market or income volatility makes you make bad choices.
Not ready to go? One way to familiarize yourself with tips is to open an account with a robo advisor. These investment firms use sophisticated software to match savers with low-cost portfolios, tailored to their time horizon, savings needs and risk tolerance.
Most plans have very low minimums and the price is reasonable. Robo-advisers charge approximately 0.25% annual fees, or $ 25 for an investment of $ 10,000, compared to the usual 1% fee for traditional advisors. You can create an account and make money in less time than your peers with full time jobs do not move anymore.
Remember that money is king
It is important to set up a regular savings routine for retirement, but do not do it at the expense of setting up an emergency fund.
In fact, having three to six months of cash should be your number one savings priority. The more unpredictable your paychecks or industry, the more funds you need in rainy days.
In the absence of cash, the temptation may be too great to withdraw retirement accounts during the lean season – and pay an early withdrawal penalty of 10%. In the meantime, if you miss or make late payments for recurring loans and bills, you could damage your credit. This translates into higher interest rates, which can haunt you long after you have caught up on your bills.
Strive to have a regular salary
After the first obstacle to the creation of a retirement account, the self-employed face another obstacle to savings: unpredictable income. If it can be difficult to schedule automatic payroll withdrawals if your accounts receivable are huge a month and non-existent the following month, there are ways to smooth your income.
A proven strategy, according to Michelle Brownstein, CFP and Vice President of Personal Services at Personal Capital: Pay yourself a bi-weekly salary from which you automatically separate from taxes, health insurance and retirement.
To do this, start by taking a conservative estimate of your annual income and divide it by 26 pay periods. Reduce that by 10%, then subtract the portion of the federal and state taxes you will need for quarterly payments; half of your monthly health insurance premiums; and retirement savings equivalent to 3% of your salary, which corresponds to the initial contributions for employer self-registration schemes.
Ideally, your self-employment income will be greater than what you pay for yourself, allowing you to build emergency savings. When your surplus exceeds what you need in rainy funds, you can start increasing your pension contributions, giving you period premiums and, yes, even taking paid vacation time.
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