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Self-Employed? These Retirement Planning Tips Are for You

This year's Super Bowl featured a comical advertisement showing senior citizens engaged in odd jobs normally reserved for those who are younger, like being a DJ and running a dog walking service. The punch line is that these people just didn’t plan well for their retirement, and are going to be working until they are in their 80s.

For some, this type of situation isn’t funny it might be reality, especially with the growing number of people who are running their own business or acting as independent contractors. Those who are self employed don’t necessarily have the benefit of an employee-sponsored retirement plan where the company matches your contributions. If you are one of those people, you may well be considering working until you are 90. Or, maybe you’re looking into alternative methods of saving money for your retirement years.

Individual Retirement Accounts

Individual Retirement Accounts (IRAs) are perhaps the plan most of us are familiar with. There are several types of IRAs, like Roth IRAs and Simple IRAs. The accounts are designed with simplicity in mind. They are structured so that you will think twice about trying to draw out funds before you reach retirement age. They are ideal for young people just starting out or people in fields where jobs are harder to come by, like freelance journalists.

There are many different types of IRAs with different strengths. Some may be better for those running their own business and have employees, others may be better for self-employed people who have not incorporated. Some, like the traditional IRA offers a tax benefit as you work, while others like the Roth, which allows a tax benefit upon retirement.

Simplified Employee Pension (SEP) IRAs are good for those who have a business with employees. The employer contributes to the plan, not the employees. If you are your only employee, then you contribute to your own plan.

DIY 401(k)

If you are running a business with few employees, but have already started to make some money, you may consider a solo 401(k). A solo 401(k) is similar to a plan you may be familiar with if you had one with an employer. As a self-employed person, you will contribute to it as you would if you were your own employee. You can also contribute to it as an employer. However, if you have employees, you cannot contribute to a solo 401(k).

Personal Pension

A defined benefit plan may also give you the kind of retirement plan you’re looking for. With this type of plan you are essentially setting up your own pension. You contribute cash to the fund, and at a preset time, you’ll start receiving regular benefit payments. However, the costs of starting and running these plans are typically higher than most so these types of plans are ideal for people with highly successful solo endeavors with a lot of liquidity.

Explore Your Options

Perhaps one of the most important things you can do while planning for retirement as someone who is self-employed is navigating your options. You should give considerable thought to your career plans and how long you plan to stay on the self-employment path. If you don’t already have a family and children, consider what you’ll need to do to care for them as well. Will a retirement plan be a part of a larger investment strategy that includes a college fund?

Creating a sound strategy for retirement can provide you with a good target to hit, inspiring you to work a little harder towards a date when you can live a more relaxed, relatively carefree lifestyle. Yet, a recent study showed that people who work past the age of 65 live longer than those who retire early.1 Maybe that crazy commercial with the senior citizen DJ is on to something after all.

1 https://www.npr.org/2016/05/09/477301458/working-longer-benefits-your-health-as-well-as-your-nest-egg-study-says

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.