What about retirement? Simple prep for freelancers

Apr 12, 2018

“What will you do for retirement?”

“I’ll be just fine. I'm doing something that I love, so retirement is not an issue. In fact, I really don’t plan on retiring. I'll just keep writing until I can’t write anymore.”

I have to admit that the first time someone asked me about retirement, I didn’t give it much thought. With two parents who retired from traditional jobs that either included a 401K or a pension, I’d only understood retirement through the vantage point of two people who worked for others their entire adult lives. At the time, I didn’t personally know anyone who had retired from being self-employed or freelancing.

And since I was in my thirties and freelancing was a second career, it didn’t seem like a pressing question at the time.

What about the future?

This question came back up when I recently talked with a young lady, in her late thirties, who is thinking about freelancing full-time. After we discussed all of the benefits, we had a tough conversation about money. We talked about feast or famine, we talked about surplus and shortfalls, and we talked about the million-dollar question that lingered throughout our discussion: What about the future?

I shared with her that as a new birthday approaches and I inch closer to retirement age, I am starting to give a lot more thought to life after freelancing: specifically, will I have enough saved to enjoy my golden years?

It’s human nature to wonder about one’s future. There are so many variables that we can’t control and this can lead to angst and fretting. It can also lead to regrets and doubts. Couple those concerns with an ever-changing political climate and global economic infrastructure and the thought of the future, especially one’s long-term financial forecast, may be daunting.

But, as I shared with her, it doesn’t have to be.

Preparation doesn't have to be complicated

Like many freelancers, I am familiar with 401Ks, stocks, bonds, real estate and mutual funds. What I am still learning about is the best way to prepare for the days when contracts aren’t coming in or I am no longer able to, or don't have the desire to, write. As much as entrepreneurship works for me now, it may not look the same in my sixties and seventies.

One of the worst things imaginable is that some of us may regret the decision to freelance when we are older because we are ill-equipped to truly enjoy the fruits of our labor. The reality is that whether you are 20 or 59 years old, we all need to be prepared, especially with potential reiterations of social security and medical insurance over the next few decades.

Because of this, it’s important to have a working understanding of what you can do now to prepare for later. Although there are several retirement options that you can explore, I want to explore a route called SEP that may be helpful for the overwhelming majority of us who fall into one of the following categories: 1) self-employed, 2) freelancer "on the side," or 3) small business owner.

SEP (Simplified Employee Pension)

According to the IRS, “A Simplified Employee Pension (SEP) plan provides business owners with a simplified method to contribute toward their employees’ retirement as well as their own retirement savings. Contributions are made to an Individual Retirement Account or Annuity (IRA) set up for each plan participant (a SEP-IRA).”

SEPs are similar in scope to a traditional IRA. You can set up a SEP account for yourself as well as for your employees, if you have any. SEPs are particularly beneficial if you are a sole proprietor, if you still work (and you have other retirement accounts) and freelance on the side, or if you own an LLC and you want to contribute to your contractors’ retirement.

How to apply for a SEP

The application process is user-friendly and self-employed fillers can open one up and fund it up until the tax deadline for their business. To get the process started, complete the Form 5305-SEP or the Simplified Employee Pension: Individual Retirement Accounts Contribution Agreement. You can set up a SEP account through banks, insurance agencies, or a brokerage firms.

Another benefit of a SEP, especially for second career freelancers, is that you can open a SEP account even if you have a 401K that you have rolled over from a previous employer. To learn even more about SEPs, check out this link.

Plan for your future today

Whether a SEP or some other pathway is the best option for you, the most important thing is that you are thinking about the future and protecting those things that you have worked so hard to acquire. If doing it yourself is not ideal, it is worth noting that a financial advisor, wealth management specialist or a CPA may be of great value as you take a deeper dive to explore your options and decide what’s best for you.

Freelancers Union offers access to Honest Dollar, which provides simple, automated and low-cost retirement savings solutions!

Tyra Seldon

Tyra Seldon is a former English Professor turned writer, editor and small business owner. Her writing addresses the intersections of race, gender, culture and education. seldonwritinggroup@hotmail.com