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7 Ways to Prepare for Retirement When You’re Self-Employed

Prepare for Retirement

There are plenty of benefits to being self-employed, including being your own boss, a lot of freedom in terms of deciding when, where, and how to work, unlimited income potential, and the option to decide when and how to retire. But one of the downsides of self-employment is that there are no employer-provided retirement benefits to enjoy. Because of this, if you are a freelancer or are running your own business, it’s important to put together a plan of your own, designed to help you save and prepare for your retirement.

The statistics show that self-employed people are not as prepared for retirement as they would like to be. In fact, a survey of self-employed people carried out by Transamerica Centre for Retirement Studies found that only 25% of self-employed people surveyed described themselves as being very confident that they were going to be able to have the type of comfortable retirement that they wanted. Also, the survey also found that a large majority of self-employed people could be doing more to prepare for retirement.

To make sure that you are on the best track for preparing yourself to retire if you are self-employed, it’s important to get into a regular habit of saving or investing for retirement. You should have a retirement planning strategy in place – particularly a written one, and it’s also important to put together a backup plan to ensure that you will be able to enjoy your retirement if you find yourself in a situation where you can no longer continue working before your planned retirement time arrives.

Preparing for retirement when you are self-employed means doing it yourself. Thankfully there are several things that you can do to ensure that you’re ready to retire once that time rolls around. No matter your age or the length of time that you have been self-employed, preparing for retirement as early as possible puts you at an advantage.

Save Money Consistently Over Time:

Saving consistently can often be tricky when you are self-employed, especially if you are faced with earning an inconsistent amount of income. When your income is irregular, it can be difficult to work out how much to save on a weekly or monthly basis towards your retirement. The best way to do this is to put aside a certain percentage of your earnings each time rather than a set amount. And, when you do earn above average, saving more of your income during times when your business is doing well should help you make up for the times when you might have to cut costs a little and will find it harder to save.

Try Retirement Investing:

When done right, investing can provide you with a suitable nest egg for your retirement. And the good news is that there are several investment platforms that are easy to use and do not take up a lot of your time. Investing does not guarantee that you will improve your wealth. However, you can certainly up your chances of getting strong returns on your investments by taking the time to learn as much as possible about investing, practice before you get started, and choose the right type of investing and investment platform for your needs and skill level. Wealth Simple has a lot of information available to help you get started with investing for your retirement, including a retirements savings calculator to help you get a clearer figure on how much you’ll need to save for retirement, based on factors such as your age, how much money you make per year, and how much you already have saved towards your retirement. Wealth Simple also has some very handy guides to help you decide which type of investing is best for you and offers automated investing tools designed to help you grow your wealth, without taking up precious time that you need to focus on your business.

Use the Right Savings Account:

The right savings account can make all the difference when it comes to saving up for your retirement. Experts suggest a tax-free savings account (TFSA) is an ideal option for freelancers and business owners since any investments that you hold in this account benefit from being tax-free. And, since these accounts allow you to withdraw your cash whenever you need it, they can be an ideal option for self-employed people who are concerned about being able to access their retirement funds to help them out in the event of a business emergency, for example.

On the other hand, there are some downsides to a TFSA, such as an inability to deduct TFSA contributions when you file your tax return – unlike other accounts such as a registered retirement savings plan (RRSP). Deciding which account is going to be best for you will depend on a number of factors, including how much income you make in a year. A TFSA is generally the best choice for self-employed people who earn up to $40,000 per year, while an RRSP is likely to be a better option for you if you earn more than this figure annually. If you’re earning a six-figure income, it is wise to maximise contributions to your retirement fund account but also pay some money into a TFSA. This is because once you retire and convert your retirement account into a retirement fund, you’ll be taxed on any cash that you withdraw as regular income.

Remember to Pay Yourself First:

When you are self-employed, it’s easy to put yourself last when it comes to your business. Many self-employed people find themselves in a position where they prioritise funding the business and paying everybody else before paying themselves, but this sometimes means that there’s nothing left over by the end for them to take. Paying yourself first means that there won’t be any months where you are selling yourself short or struggling to add to your retirement account. Even if you have to cut costs and perhaps even live on a lower income for a while to ensure that your business expenses and employees can be paid, it’s important to make paying into your retirement account a main priority. The best way to do this is to set up an automatic deposit into your retirement savings account every month.

Get Professional Financial Help:

Most self-employed people find that it is best to work with financial professionals who can help with both your personal and professional finances. An accountant and financial advisor are not just there to help you with the financial side of your business; they can also be very useful when it comes to putting together a plan for your retirement. Meeting with financial professionals and reviewing your current situation in terms of planning for your retirement on a regular basis is highly important; even if things haven’t changed much for you personally, it’s still a good idea to review the situation since there might be external changes, such as to laws and legislations, that can have a big impact on your retirement plans. For example, if changes have been made to the Canada Pension Plan (CPP) or the Income Tax Act, these things can have a significant effect on your retirement plans.

Get the Right Insurance:

If you are self-employed, getting the right insurance is crucial to replace the coverage that you would be provided with by your employer if you were in employment. Personal health insurance will cover any costs for medical-related expenses like prescription drugs, dental care, and optical work. One of the most important types of insurance cover to consider if you are self-employed is disability insurance, which is designed to replace part of your income if you are unable to work due to sickness or injury, providing a layer of protection should you find yourself in a situation where you are required to give up your self-employed work for a while. Since self-employed people don’t get sick pay, it’s important to ensure that you take a proactive approach to getting cover. The right insurance will protect both your income and your retirement savings if you find yourself in an unexpected situation.

Eliminate Debts:

Finally, becoming debt-free is an important way to prepare yourself for retirement. This is something to consider starting as early as possible to ensure that you are not cutting into your savings as soon as you retire in order to pay off debts that have been accumulated throughout your life. You should plan to retire with no debt or at least a very small amount. Begin by coming up with a plan to become debt-free by repaying all the high-interest debts like credit cards first and working through each debt to clear it off. If you are struggling with debt, it’s worth considering a plan for debt consolidation, which will make them easier to clear off completely before you head for retirement.
Since the self-employed do not have the security of employer retirement benefits, making sure that you get to comfortably retire at the time you’d like to is down to you.

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