How to Retire When You Work from Home

Planning for retirement when you work for a company that contributes to your 401(k), while not easy, is certainly easier than doing it all on your own.  And in truth, most freelancers I know are not planning for retirement at all.  Instead, they figure that they can get to that later, or that their job is easy enough that they can do it indefinitely.  

Reality check: you can't.

For example, I am a writer and an editor.  These are evergreen skills, right?  Well, writing is all about knowing your target audience, and the target audience for most clients will eventually be younger than me.  I can try to keep up with the times, but I am pretty sure that when I am 75, I won't really be able to understand where 25-year-olds are coming from.  And that doesn't even take into consideration things like health, energy, and cognitive decline.  

Eventually, you will need to scale back or get out of the game entirely.  And that means you need to save for retirement.  How can you do that?  Let's take a look at the four best options for freelancers.

Automatic Savings Plan

With an automatic savings plan, every month money will be automatically transferred from one of your accounts into a savings account that you designate for your retirement.  The benefit of this is that there is little for you to think about, and when you have extra in a given month, you can save more.  However, you need to have plenty of self-control, as it can be tempting to dip into this instead of letting it sit until you quit working.

Traditional IRA

Using a traditional IRA will give you a tax break now, allowing you to deduct what you contribute up to certain limits.  You can start taking money out once you reach 59.5 years of age, and the money you take out will be taxed as income.  You can continue contributing to a traditional IRA up to the age of 70.5, after which you can no longer add money to it and must start taking money out.   

Roth IRA

With a Roth IRA, you do not get a tax break as you put money into your IRA.  However, once you reach the age of 59.5, you are not taxed on what you withdraw.  You are also allowed to contribute to your Roth IRA for as long as you are still bringing in income, and there is no age where you are required to start taking money out.  

SEP IRA

SEP stands for Simplified Employee Pension Plan.  This is for anyone who is self-employed or earns income on their own from a side gig, even if they have employment with a company that contributes to a 401(k) for them.  This type of IRA works like a traditional IRA, except with a higher contribution limit.