Helpful Retirement Tips for Home Workers
By: Kelley Amstutz
Being an Independent Contractor and working from home does not mean that you shouldn’t start thinking about saving for retirement and making those dreams of leisure a reality.
It doesn’t matter if you are working from home as part of a well thought-out plan, retirement does not just happen, especially when you are on the self-employed road. And the thought of saving for retirement can be overwhelming and down right daunting as a work from home independent contractor, but it can be done and truth be told, it is not as tricky as it might sound.
Here are Four Saving Tips that should help you get started on that exciting road to retirement as a work from home worker.
When do I want to Retire?
It seems like an easy enough question, but there are some that prefer to find their freedom all at once. Would you like to retire when the nest is empty? Maybe you are married and would like to retire at the same time in life as your spouse? Since you are self-employed, your retirement age depends entirely on you- how much you save ahead of time and when you are ready to live off that savings will play the final factor in your decision making.
How much money do I need to Retire?
How much to set aside for retirement is a question that can be tricky to answer and honestly, it depends on what kind of lifestyle you want when you are ready to leave the working world. You will probably no longer need to pay for the expenditures that come with young children, as you might be doing currently, but you might have travel plans in your retirement dreams, or maybe you want to eat outside of the home more often, or even enjoy some new hobbies that you have been putting off while you are still working . There are things to consider when looking at how much you will need, such as paying off bigger bills like mortgages and student loans. Maybe your living situation will change due to wanting to rent a home or condo with less upkeep, which will require more of a monthly expense than what is carved out in your current budget. It is recommended by many financial representatives that you save 10 to 15 percent of your income now, for the retirement phase of your life.
If you are self-employed, saving a percentage is usually easier than a set amount every year. Your good and bad years should even out and this will ensure that you do not have to worry about meeting a specific dollar amount each year.
What Plan works best for me?
When you are looking into saving for retirement, you will find that there are a variety of plans to choose from. The one that works best for you will depend entirely on your situation and your preferences within your lifestyle.
If you are busy and don’t have the time to manage anything else, you might choose to look into a SEP IRA or Simplified Employee Pension Plan. This plan is something that you set up one time, and you can even set up automatic payments once you get going so you can remove any worry about having to set it up again. With a SEP, you can choose between a traditional IRA or a Roth IRA. This conventional retirement plan allows for a contribution of up to 25 percent of each employee’s pay and the employee is always 100 percent vested in (or, has ownership of) all SEP-IRA money. To set up your SEP-IRA, you will first need to choose a financial institution to serve as trustee for the SEP-IRAs that will hold your retirement plan assets. These accounts will then receive the contributions that you make according to your plan preferences.
For more information on the SEP-IRA retirement plan you can visit IRS Simplified Employee Pension Plan (SEP).
If you have an unpredictable income a plan which allows you to contribute one large amount at the end of the year, like a Keogh Plan might be a good option. It requires more maintenance than a SEP IRA, but it allows you to save up to 25 percent of your income up to $49,000 and it is tax-deferred. You can start withdrawing once you are 59.5 years old without any type of penalty. To set up the Keogh Plan you will need to open a SIMPLE IRA through a bank or another financial institution.
For more information on the Keogh retirement plan you can visit IRS Keogh Retirement Plan- Simplified Employee Pension .
If your earnings are not much, you might look into getting a Roth IRA, which is your best bet if you don’t earn enough to benefit from the tax breaks of a larger contribution plan. You will not deduct the contributions every year on your taxes, but the fund is tax-free both as it grows and when you decide to withdraw. You can set up your Roth IRA through your financial institution. You would then authorize payroll deductions for the Roth IRA.
For more information on Roth IRA retirement plans you can visit IRS Roth IRA Retirement Plans.
If you are still not sure what plan would work best for you, consult a financial adviser, perhaps the person who prepares your taxes every year, an experienced financial adviser or even a representative at your local bank or credit union. Every situation is different, so it is always a good idea to talk to someone about your options who is familiar with the financial field.
What else can I do to Save for Retirement?
Everyone’s situation is unique, but depending on that, you might choose to do more than just set up one account. Some great tips to help you save for retirement might be:
² Work to pay off your mortgage or other large debts early so that you are able to contribute a larger sum of money to your retirement fund in the future.
² Ensure that you and your spouse or partner are on the same page. If you are married you will need to know what plans your spouse has in place for retirement. Talk about what age you would like to retire at, and what kind of lifestyle you would like to live to ensure you reach those goals.
² Contribute what you can. Maybe you are just starting out as a self-employed home worker and can only take in a small income at the current time. That is okay- just save what you can, as much as you are able. Set aside 10 percent even it is only $10, and as your business grows you will be able to set aside more savings for your retirement goals.
While the perception of working from home might be viewed as you staying in your pajamas all day, those who do work from home know that handling work and all the responsibilities that still go on at home can be tough- and a job that deserves a rewarding retirement. Think about when you want to retire, how much money you will need in order to retire, what plan you should use and any other little step that might help you reach that big goal of retirement. Saving for retirement can and will be tough, but the sooner you begin, the easier it becomes.