Retirement Planning for Freelancers
Building the Nest Egg
Employees have 401(k) matches forcing them to save. Freelancers must manually build their own retirement accounts. The power of compound interest means that saving $500 a month in your 20s is vastly superior to saving $2,000 a month in your 40s.
Frequently Asked Questions
What is a Solo 401(k) vs SEP IRA?
Both are powerful retirement accounts for self-employed individuals. A Solo 401(k) often allows for higher contribution limits (you can contribute as both the employer and employee), but it requires more paperwork. A SEP IRA is much simpler to set up and maintain, but limits contributions to roughly 20-25% of your net income.
What is a safe withdrawal rate?
The '4% Rule' is the usual starting point: withdraw 4% of the portfolio in your first year of retirement, then increase that dollar amount by inflation each year afterwards — not 4% of the balance each year, which is a different and more volatile thing. The research tested 30-year retirements and found that held up in almost every historical period. It is a planning heuristic, not a guarantee: a bad run of returns in the first few years is what breaks it, and retiring earlier than normal age means a longer horizon where a lower rate is prudent.