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As a Self-employed Individual, Am I Facing a Retirement Crisis?

I’ve been self-employed for over six years now. While I enjoy the freedom my work provides, I can’t say the pay is all that great. And the significantly lower pay scale than I enjoyed with my previous role in hotel management makes it harder to squeeze out a little something extra for retirement planning.

According to USA Today, “TD Ameritrade’s Self-Employment and Retirement Survey found that 40% of the self-employed are not saving regularly for retirement, and 28% are not saving at all.

Up until now, you could count me among that 40% of self-employed people not saving regularly for retirement, but I’m now working to change that.

The Difficulties in Self-employment Saving

There may be several reasons as to why it can be more difficult to save for retirement as a self-employed individual.

First off, things like higher costs due to having to pay the employer as well as employee side of employment taxes can take a significant portion of earned income.

Second, variable income levels may mean there is enough to invest one month but not the next. With higher expenses related to work supplies or business costs and the fact that there isn’t an employer-sponsored or matched retirement plan to contribute to, and saving for retirement can be more challenging when you’re working for yourself.

Finding a Good Retirement Plan That Fits Needs and Financial Capacity

Squeezing out enough money to make an occasional retirement contribution can be hard enough, let alone determining a plan that fits your needs and financial abilities.

Sitting down and deciding upon risk levels, reviewing asset allocation and diversification, and deciding what type of plan fits these needs can be critical to developing a working self-employed retirement plan.

Personally, I’ve gone with a more conservative route, selecting a DRIP – or dividend reinvestment plan – that provides low, yet stable share value paired with monthly reinvested dividends that act as a sort of regular contribution. This means that even if I miss a contribution of my own, my share total is still continuing to grow.

Developing a Manageable Contribution System

To quell the fears of a retirement crisis of my own, I’ve developed a plan that I hope is not only reasonable but achievable as well. Better yet, my wife has joined me in my efforts, and we’ve each decided to put $50 a week toward our retirement plans.

It’s a small amount, but it’s a goal that can grow over time, and maybe more importantly, one that we feel we can meet with regularity.

With a contribution of $5,200, compounded annually at 5.75 percent for the next 30 years, we could be looking at over $415,000. While it may not be enough to retire on by itself, with Social Security and partial income should I continue to work in retirement part-time (which is currently the plan), it’s certainly a start.

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