About 34% of the workforce today is made up of freelancers, constituting what is now known as the “Gig Economy”. These individuals have forgone the traditional 9-5 office jobs for temporary contract work with one or many organizations.
And, Intuit predicts that number will continue to grow. For so many, working from home or having the flexibility that comes with America’s Gig Economy sounds like a dream come true.
But with a growing number of freelancers in the workforce, a bigger problem is being realized – nearly half of these freelancers do not have a formal retirement plan.
Though retirement is a goal for many Americans (some would even say it’s their “right” after years of hard work), it has become significantly more difficult (and expensive) to attain. Those who are self-employed, working “gigs”, part-time jobs, or contract work don’t have access to employer-sponsored plans like a 401K. So, they have to design their own.
Here are some practical ways to build a retirement savings fund if you’re self-employed or run your own small business. If you’re looking for more tips on how to save for retirement, check out this blog.
Disciplined consistency is key to success. Retirement savings grow because of compound interest, which means the earlier you start saving (even if it’s a small amount), the more money you’ll have later. It would be more beneficial for you to consistently save a small amount of money starting at age 25 than to periodically save large amounts of money starting at age 45.
Budgeting is the “secret sauce” to this disciplined consistency. It will help you save, control your spending, and reach your long-term goals.
Living on a budget = living beneath your means = living with financial margin = saving for the future = happy retirement.
In Proverbs, Solomon tells us to learn the principles of saving and discipline from an ant (not exactly an interesting insect). Proverbs 6:6-8 – “Go to the ant, O sluggard; consider her ways, and be wise. Without having any chief, officer, or ruler, she prepares her bread in summer and gathers her food in harvest.”
In other words, prepare for the future… today.
You can design your own retirement savings plan without brokers or bankers who will charge you fees and commissions. It just requires a little bit of research. I’ve outlined some of the most common retirement plans below, but if you want to learn more about your options, I’d suggest this blog.
Traditional IRA: “IRA” stands for “individual retirement account”. A traditional IRA means that you save pre-tax money and it grows in a tax-deferred account. You pay taxes on the money when you withdraw it at the time of retirement. The maximum contribution for 2017-2018 is $5,500 for people under age 50. For taxpayers aged 50-70.5, you can contribute up to $6,500 a year. Once you are past age 70.5, you are no longer eligible to contribute to a traditional IRA.
Roth IRA: A Roth IRA is similar to a Traditional IRA in the sense that your earnings grow tax-free and the maximum contribution amounts. It’s different in how your contributions are taxed. With a Roth IRA, you save money that you have already paid taxes on and your account isn’t eligible for tax deductions. You may be eligible for a tax credit, though. Also different than a traditional IRA, you can continue to make contributions past age 70.5.
The biggest difference between the 2 IRA options is when you pay taxes on the money you’re saving – as you save, or once you’re ready to use it. For this reason, many people choose a Roth IRA. Neither of these options are specifically designed for self-employers or small businesses. But they are some of the most common retirement plans.
Solo 401K Plans are very similar to employer-sponsored 401K plans, but are designed for the freelancer, self-employed, and independent contractor. They offer tax benefits and offer higher annual contribution limits (in 2018, you could contribute up to $54,000 if you’re under the age of 50). You can choose to have a Traditional or Roth set up for your Solo 401K Plan, depending on how you want to pay taxes on your savings. You cannot utilize a Solo 401K Plan if you have employees.
The SEP (Simplified Employee Pension) IRA is an option if you do have employees. You can make tax-deductible contributions on behalf of your employees, much like a normal employer-sponsored 401K. If an employee wants to receive contributions from an SEP-IRA, they must set up their own Traditional IRA first. Employees do not pay taxes on their contributions, but earnings are subject to income taxes.
Don’t let any of these options confuse or intimidate you. The Bible is full of wise investing principles, like Ecclesiastes 11:2 – “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.”
Growing your income and preparing for the future is part of being a good steward. Do some research and take action. Time is valuable for your investments to compound. It will start out gradual, but years of habitual saving will cause those funds to grow exponentially.
For some practical help on how to get started, check out some of Crown’s exclusive resources:
Are you an employer or freelancer? What have you done to save for your own retirement? Share your advice with us on Facebook!
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