The days of company loyalty, climbing the corporate ladders, and cushy pensions are long gone. Nowadays, many companies will help you save for retirement with employer-sponsored 401(k) or 403(b) plans, but it’s not a guarantee. If you’re all about that startup life, have started a small business, or turned your side-hustle into a full-blown freelance career, then you might be on your own when it comes to saving for retirement.
Between working at a startup and now working for myself, I haven’t had an employer-sponsored plan to help me save for retirement for a few years now. I’ve had to take matters into my own hands and wanted to share what I’ve learned about saving for retirement on your own.
Calculate Your Needs
Of course, there is no way to predict exactly how much money you’ll need during retirement, but you can get a pretty good estimate based off how old you are now, how much you can afford to save every month, and your annual income. Personally, I feel safer doing this kind of math with a little help, so I’ve turned to this handy retirement calculator. All you do is plug in some basic info about your retirement progress and goals and it does the rest of the work for you.
Set Up an Automatic Deposit
Now that you know how much you should ideally be saving this month, set up an automatic monthly deposit that allocates money towards your retirement fund. Usually, when contributing to an employer-sponsored retirement plan, you would set up automatic withdrawals from your paycheck, so why not do that when you’re saving on your own?
Even if your income isn’t consistent, try to set a standard for how much money you can save each month for retirement. If retirement becomes a part of your budget like bills, rent, or food, then you’re more likely to stick with your savings plan.
Get Your Taxes in Order
One of the benefits of contributing to a 401(k) or 403 (b), aside from that sweet company contribution, is that your contributions are made with pre-tax dollars. This means that at the end of the year, you’ll be taxed on a lower total income. For those of us who don’t have 401(k) plans to contribute to, consider opening an IRA account.
An IRA is an account that you set up with a financial institution and will allow you to save for retirement with tax-free growth or on a tax-deferred basis. There are three types of IRAs that each have their own advantages.
- Traditional IRA: The contributions you make may be deductible on your tax return and any earnings can potentially grow tax-deferred until they are withdrawn in retirement. As many retirees find themselves in a lower tax bracket (and lower tax rate) upon retirement, this can save a hefty amount of money over the years.
- Roth IRA: With a Roth IRA, you make contributions with money you’ve already paid taxes on and your money may potentially grow tax-free, with tax-free withdrawals in retirement.
- Rollover IRA: Say you once had an employer-sponsored retirement plan, but no longer work for that company. You can “roll over” the money you contributed from a qualified retirement plan into a Rollover IRA.
Put Your Money Where You Can’t Touch It
If you’re uncomfortable with the idea of contributing to an IRA, where you’d be penalized for removing money before age 59.5, then consider a shorter term option for investing your money. One option would be to place some savings into a Certificate of Deposit (CD) for a few months or years. A CD is a type of savings account that has a fixed interest rate and fixed date of withdrawal. There really isn’t any risk with a CD (unlike a 401(k), 403(b) or IRA) and they are insured by the FDIC up to $250,000 per depositor.
You can’t remove funds without a penalty, but you can choose how long you’re comfortable investing your money for. However, the longer the term length, the higher the interest rate you’ll earn. This is a great solution for people who anticipate they may have to dip into savings when their children go to college or when they want to buy a house.
Thanks to technology, there are plenty of apps and online services that will help you take your financial future into your own hands. Twine will help you build a stock portfolio based on your goals and allow you to save with a partner. Acorns will invest the leftover “change” from your purchases and invest them for you.
Northwestern Mutual acknowledges that retirement assistance from employers is on the decline and they can help advise you on how you should be saving. Ellevest offers similar retirement planning services geared toward women and their needs based on women’s income and life cycles. Point being, there’s help out there for you whether you want to manage your money on your own or work with a financial institution.