We’ve all seen social media posts from successful freelance writers sharing advice about making “X” dollars monthly (or annually). But how often do you see posts about steps a freelance writer can take to plan for retirement? Unless you’re searching for it specifically, probably not that often.
Freelancers are considered part of the “gig economy,” and according to Statistica’s 2018 research study, 27% of these professionals didn’t have retirement savings. Depending only on social security retirement income is tricky and not always sustainable. Statistics from research conducted by the US Bureau of Labor and Statistics reveal that by 2030, over 16 million workers ages 65 and older will still be in the workforce.
That leads us to the first section of this guide, where we discuss the importance of planning for retirement as a freelance writer. While we broached this topic in 2021, it’s worth revisiting and diving into a bit more detail.
Why Should Freelancers Plan for Retirement?
I had the pleasure of speaking to writer and journalist Angela Tague of Web Writing Advice about this subject. As soon as Angela left her full-time job, she initiated a Roth IRA. She explains, “I’ve initiated my own Roth IRA, and I also have a long-term liquid savings account as a self-employed person.”
She further explains that she understood the importance of the decision and didn’t hesitate, “My ROTH was one of the first things I set up after leaving my last employer. So, it happened in the first year of full-time freelancing!”
Because no one knows for sure how long they’ll freelance, and the idea of freelancing forever isn’t always realistic, taking steps toward planning is critical. Angela explains, “I am already thinking of ways to make it financially possible to wind down earlier in life. I’m being mindful of how I’m investing and spending in my 40s, so maybe I can retire in my 50s. I’m already on track to pay off my mortgage early! 💪🏼”
And, because economic times aren’t always steady, thinking about how affordable it is to plan for retirement often stalls these plans for many freelance writers. However, as Angela points out, it isn’t impossible, “I think it’s SUPER manageable if you find the right plan. Mine has a minimum $50/monthly contribution, which is where I started. I think most freelancers could handle a $50 bill each month if they budget themselves and realize the value in that investment.”
Remember that a Roth IRA is just one of the ways freelance writers can plan for retirement. I will break down six ways to make these plans in the next section.
Six Ways Freelance Writers Can Plan for Retirement
Because freelance writers are self-employed, they don’t have opportunities to participate in a company’s 401(k) retirement plan. Therefore, they must be proactive about figuring out other options and set plans into motion to have funds available when reaching retirement age.
Examples of opportunities include setting up an emergency fund account, opening a high-yield savings account, a SEP-IRA, a Simple IRA, a solo 401(k), and a traditional or ROTH IRA. Let’s examine each more closely:
1: Emergency Fund Account
Your freelance writing business might be booming today, but what about when things start to ebb and flow? You might have enough come in this quarter to cover living expenses, quarterly taxes, and savings. There might also be extra for what we’re discussing here – your retirement account.
But what happens when things slow down? Your anchor client might need to freeze their editorial calendar to catch up on their content backlog or refresh their website. Or, your health might decline, and, in that case, finding other side-hustle gigs to make up for empty slots in your calendar might not be an option.
While most experts recommend stashing between three and six months’ worth of living expenses in an emergency fund, you can also use NerdWallet’s emergency fund calculator to see how much is the “correct” amount.
2: Open a High-Yield Savings Account
Hold these funds in a separate account from the emergency fund you set up. Opening a high-yield savings account means you’re stashing your money away into an account with the highest interest rate. Examples of companies offering high-yield savings accounts include:
- CapitalOne: zero minimum balance and 0.60 APY (Annual Percentage Yield)
- LendingClub: $100 opening deposit required, 0.70% APY for balances exceeding $2,500
- Marcus (by Goldman Sachs): no minimum balance, 0.60% APY
SEP is an acronym for the IRS’s Simplified Employee Pension Plan. These plans are available to businesses of any size, including sole proprietors. While other fees may apply, it doesn’t cost anything to open or maintain accounts. Among others, the following brokers and mutual fund companies offer these plans:
The downside of this option is unlike Roth IRAs; there’s no option to pay taxes on contributions now, so that you can take distributions during retirement tax-free.
4: Simple IRA
Simple, in this case, stands for Savings Incentives Match Plan for Employees. It’s ideal for small business owners who don’t meet the reporting requirements set by other retirement plans (like a 401(k), for example). While self-employed freelance writers can open a Simple IRA, consider the disadvantages, including higher withdrawal and rollover penalties.
5: Solo 401(k)
There are eligibility limits for these plans – only self-employed individuals or married couples running a business without hiring employees can contribute. These plans are set up similarly to a traditional 401(k), whereby you can make tax-deductible contributions. You can find a comprehensive guide covering the ins and outs of these plans here: (Forbes) Are You Self-Employed? Check Out a Solo 401(k).
6: Traditional or Roth IRA
Traditional or Roth IRAs (Individual Retirement Accounts) are plans anyone, including a freelance writer, can open. Depending on your income and the type of account you choose, you can contribute to these plans alongside any other retirement plan. There are differences between these two plans you should be aware of, though:
- Traditional IRA: You might be able to deduct your contributions when filing your annual taxes. When you withdraw contributions from a traditional IRA, you’ll pay taxes on that retirement income according to your tax rate at the withdrawal time.
- Roth IRA: You may not deduct contributions from your taxable income. Instead, you pay those taxes the same year you contribute to your Roth IRA, and at the time of withdrawal, you receive that money tax-free.
Final Thoughts on Retiring as a Freelance Writer
After deciding which retirement plan (or combination) is best for you, the next step is figuring out where to open your account. Start planning for and setting up your retirement strategy as soon as it’s feasible – that’s where help from a financial advisor or accountant comes in handy. They’ll help you devise a strategy and choose a retirement plan ideal for your situation.
As a side note: None of the information or suggestions contained in this guide should replace guidance you receive from an accountant or financial advisor.
How can a freelance writer save for retirement?
Start the planning and saving process by setting up an emergency fund and opening a high-yield savings account. Then, look at other retirement planning products that might be best for your situation, including a SEP-IRA, Simple IRA, Solo 401(k), and traditional or Roth IRA.
Do freelancers get retirement?
Because freelance writers are considered self-employed, they don’t receive traditional employee retirement plans, like an employer-sponsored 401(k) plan. However, freelancers can receive social security retirement income and draw from individual retirement plans they initiate.
Can I have a 401(k) as a freelance writer?
Regardless of your business structure, freelancers can open a solo 401(k) account. Then, you’re eligible to contribute as an employer and an employee tax-free.