I have been self-employed (1099) for more than a decade. As your own boss, there is a lot of freedom and flexibility, but it also means taking responsibility for a lot of things that W2 employees may not have. You have to take care of your taxes, insurance and retirement. This can be challenging without an employer-sponsored 401(k). Fortunately, there are many things you can do to successfully start your retirement plan for self-employed people.
1. Start saving early
Saving can be one of the most important parts of the puzzle when you retire. The sooner you start, the more you will benefit from complex interests. Even if you can only put a small portion of your own making, you will make a difference. Remember, consistency is key. So if you can put 15% to 25% of your income aside on a regular basis, you will find your savings growing.Expert tips: First pay for yourself by automatically saving. You can transfer duplication to your retirement account.
2. Open a self-employed retirement account
If you are self-employed, there is no employer-sponsored 401(k) to rely on retirement savings. This doesn’t mean you don’t have a choice! Consider opening a 401(k), Sep IRA or a simple IRA to maximize your tax advantage. Everyone has unique advantages that can help you make the most of your retirement savings. I personally recommend 401(k). It allows you to contribute as an employee and an employer. This can greatly improve your saving potential.
3. Diversify your portfolio
Although I haven’t started investing heavily, a diversified portfolio will help you reduce risk and increase your overall growth potential. It is important to avoid putting all your money into one asset class. Mix stocks, bonds, real estate and other investments. If you are reluctant to make these decisions, consider working with a financial advisor. This can help you align your investment choices with risk tolerance.
4. Healthcare and long-term care cost plan
Self-employed people do not have employer-sponsored health insurance, which makes medical expenses a key issue. If you have a high deduction health plan, consider opening a Health Savings Account (HSA) because paying taxes are taxable. Consider long-term care insurance factors to protect your savings from unexpected medical expenses. Medicare may not cover all medical expenses at retirement, so plan for additional insurance.
5. Pay off debts before retirement
Bringing debt into retirement can be faster than expected. Focus on paying off high interest debts as early as possible, such as credit cards and personal loans. If you have a mortgage, consider making additional payments before retirement to lower your balance. Refinancing to lower interest rates can free up more retirement savings funds.
6. Establish a sustainable retirement budget
Estimate future expenses based on the retirement lifestyle you need. When planning a budget, consider housing, health care, travel and daily living expenses. Use the Retirement Plan Calculator to determine how much you need to save. Establish multiple revenue streams, such as rental properties, passive investments, or accompanying businesses, to supplement your retirement savings.
Control your retirement today
If you are worried about a retirement plan being a self-employed person… don’t! There are many things you can do to set your own golden years. It only takes time and discipline. Take these tips and keep moving forward knowing that your retirement may be yours.
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