Posts Tagged ‘retirement’


The Retirement Files, Part One: Where To Stash Your Cash

Contributed by freelance journalist Paula Pant

There is one very important different between planning for retirement as a full-time employee and planning for retirement as a freelancer: the freelancer carries a burden of needing to save significantly more.

Why is this? Most employers offer a “company match,” in which they will match a portion of each dollar that you save for retirement. The daily newspaper that launched my journalism career chipped in 50 cents for every dollar that I saved, up to 6 percent.

Let’s assume you earn $50,000 a year as an employee. A deal like the one at my newspaper would have netted you an extra $1,500 a year in employer-sponsored savings. Not impressed by that figure? Then consider this: The difference between a person who saves $3,000 a year for retirement and a person who saves $4,500 a year for retirement, assuming both people start saving at age 25 and both people earn an 8 percent annual return, is the difference between retiring as a millionaire or not. The person who saves $3,000 a year will have $872,000 at age 65, while the person who saves $4,500 a year will have $1.3 million at age 65.

If you think these sound like excessive sums of cash, remember that $1.3 million in the year 2050 will NOT buy nearly what it can today. In fact, it likely won’t be enough to retire on.

So what’s a freelancer to do? Buckle down and start saving more. Here are some tools and tips:

1.     Open a Roth IRA. These are retirement accounts in which you pay taxes today, and then let the money grow tax-free for the rest of your life. When you withdraw it in 10, 20, 30 or 40 years, you’ll withdraw it tax-free. This is a great vehicle for anyone who is currently in a low tax bracket (one upside to not earning much this year!) or anyone who thinks they’ll be paying a higher tax rate in the future than they are right now. You can contribute up to $5,000 a year to a Roth IRA, or $6,000 if you’re over age 50. Most investment management companies like Fidelity, Schwab or Vanguard will help you open a Roth IRA.

2. Start a SEP IRA. A SEP, or Simplified Employee Pension plan, allows you to sock away one-quarter of your net income up to $49,000. This money comes from pre-tax dollars: in other words, invest now, and don’t pay a penny in taxes until you’re ready to spend it. A SEP IRA is popular with freelancers because it is easy to set up and has low annual maintenance fees. Investment firms like Vanguard will also help you set this up. Here’s a hint: don’t get confused if, during the set-up, people use words like “employer” and “employee.” A SEP IRA is structured so that the employer (that’s you, because you’re self-employed) contributes 100 percent of the cash to his employee’s (that’s also you) retirement plan.

3. Open a Solo 401k. The choice for big earners and big savers, this program helps freelancers who want the highest possible annual contribution limits. In 2009, freelancers can save a maximum of $16,500. Word of warning: if you employ an assistant, and you haven’t married your assistant yet, then this plan is not for you. It’s only open to self-employed people with no employees other than a spouse.

Stay tuned for my next blog entry, when I’ll discuss “asset allocation” – a fancy phrase that means, “how to slice up your money into different types of investments.”

Paula Pant is an award-winning freelance journalist specializing in small business and personal finance. A former newspaper reporter and assistant news editor (The Colorado Daily, The E.W. Scripps Company), she has won a regional Society of Professional Journalists award for online video reporting/producing. She is co-President of the Atlanta Pro Chapter of the Society of Professional Journalists and was named a 2010 SPJ Diversity Fellow.

Employee Benefits for Freelancers

The one thing I miss the most about the corporate life is a great employee benefit package provided by a generous employer:  health insurance, life insurance, sick days, vacation time, a retirement plan and more. As a freelancer, however, traditional employee benefits aren’t handed to us on a silver platter. Sure, we get to choose our own work wardrobe, have an incredibly short “commute” downstairs or down the hall and enjoy setting our own schedules, but that doesn’t pay the bills when we need to go to the doctor. Fortunately, freelancers have options for all of these benefits and more.

Health insurance:  When I started freelancing, I couldn’t afford health insurance, but I qualified – for a time – under my state’s health plan so I could get coverage for myself and my daughter until I was no longer eligible. When I earned enough to write full-time, I went online to get quotes for individual medical coverage. I went to esurance.com, put in some basic info. and, in minutes, received about a dozen health care plan options. I opted for a plan with some first dollar basic benefits (the first six medical visits per year were covered, for example) as well as catastrophic coverage. In addition to this option, some professional associations like SPJ and the Freelancers Union offer group discounts to their members.

Life insurance: Life insurance can also be purchased fairly easily online at sites like esurance.com. Another option is to find a local agent who represents a single company (e.g., New York Life, MetLife) or multiple companies. Originally, I purchased life insurance on esurance.com. As my family’s needs changed, however, I chose to work with my Edward Jones investment rep who was able to offer quotes from several companies.

Retirement plan:  There are a variety of retirement planning options available to freelancers including individual retirement accounts (IRAs) – traditional & Roth; solo 401(k) plans; SEP plans; and more. Because retirement planning can be complex, it is best to work with a qualified advisor. I chose to work with a local Edward Jones rep who reviewed my financial situation, time line and goals and was able to create a SEP plan tailored to my needs and to fund that SEP with investments that were appropriate for my risk tolerance and financial goals.

Sick days:  I don’t know about you, but when I’m not working, I’m not getting paid…but that doesn’t mean I have to work 24/7. I plan my schedule around my assignments, sometimes working longer days than others and taking time off when my work load is lighter. There are other options, however. In terms of sick days, I try to stay ahead of the schedule in terms of assignments. That way I am planning for the inevitable – getting sick, caring for a sick child or parent, or dealing with unavoidable work delays. With a little cushion built in, I can take the occasional sick day when I need to.

Vacation time:   Freelance expert Michelle Goodman (“My So Called Freelance Life”) builds time off when calculating her current minimum hourly rate. She accounts for benefits and time off, so she is only working as much as she wants to reach her financial and lifestyle goals.

For more employee benefits advice, stay tuned for freelancer Paula Pant’s upcoming blog post on The Independent Journalist.

Dana Neuts is a full-time freelance writer, editor and marketing professional in the Seattle area. She is the owner/publisher of two hyperlocal community blogs, iLoveKent.net and iLoveCovington.com, and she serves as the chair of SPJ’s freelance committee. For more information about Neuts, visit her website Virtually Yourz.

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