Maybe you’re counting down the years (or minutes). Or maybe you can’t ever see yourself retiring. Regardless of your age and retirement timeline, now is the time to be saving for your future. Here are some of the options and resources all writers need to consider when establishing or revisiting their retirement strategy.
Writer and editor Christy Karras began her career as a staff writer. “I realized early that as a writer I wouldn’t make a ton of money, so I wanted to be savvy about it,” says Karras. She contributed to her company’s 401(k) and learned about investing. The concept of compounding interest – interest earned on the initial principal and any accrued interest – blew her away. “Your money is making money on its own,” she says. “That’s amazing.”
When she became a full-time freelance writer, there were years she couldn’t save much, but she always tried to contribute something. One of her favorite ways to save for retirement is the Roth Individual Retirement Account (IRA). Because you’ve already paid taxes on the money you contribute to a Roth IRA, you don’t pay taxes when you take it out (for qualified distributions). The money grows tax free, and you can contribute to a Roth IRA no matter how old you are.
“One of the beauties of a Roth IRA is that people can withdraw their contributed amount without penalties or tax,” says Maura Cassidy, vice president of retirement at Fidelity Investments, a financial services corporation. “It can allow them to start saving for retirement, but if something happens, they can tap into the money without penalty if they haven’t figured out the cycles of their business.”
The contribution limits change each year. The 2019 Roth IRA contribution limit is $6,000 for people under 50 or $7,000 for people 50 years or older. A Roth IRA is available to anyone under certain income limits, depending on your filing status.
Self-employment/small business options
Karras advocates that writers – whether full- or part-time freelancers – set themselves up as an official business so they can contribute to a retirement account through that business. Cassidy agrees. “People who are writers don’t often think of themselves as a small business,” she says. “It’s important to get into the mindset and think about running their business.”
When Jill L. Ferguson wrote Creating a Freelance Career, she included a chapter on the business aspects of freelancing, including paying taxes, finding health insurance, and saving for retirement. She interviewed numerous financial professionals for the book, and that’s when she learned about the Solo 401(k). When she became a full-time, self-employed writer, she realized she needed to start her own account.
Also known as an individual, one-participant, or self-employed 401(k), the Solo 401(k) is a plan for a business owner with no employees or for that business owner and a spouse. The business owner can make contributions as both the employer and employee.
As the employer, contributions can be made up to 25% of compensation or a calculation depending on the plan and “plan compensation” level, according to the IRS Retirement Plans for Self-Employed People website (see “Resources”).
As the employee, you can contribute up to 100% of earned income up to the annual limit ($19,000 in 2019, or $25,000 if 50 years or older). It’s important for freelance writers who are employed elsewhere and participating in that organization’s 401(k) plan to remember that annual limits on employee contributions are by person, not plan.
It’s also important to note that total contributions to a participant’s Solo 401(k) account – from both the employer and employee – can’t exceed $56,000 for 2019, though people over age 50 can contribute a little more.
Ferguson researches stocks and invests regularly. However, unlike many people who invest monthly, she’s found it easiest to save separately and contribute a lump sum at the end of the year. Regardless of approach, she says, “It’s important to take advantage of all the opportunities you have to save and write things off.”
Another option that could work for writers is the Simplified Employee Pension (SEP) IRA. A SEP IRA is somewhat like a profit-sharing plan for a small business and is funded solely by employer contributions. Employees cannot contribute to a SEP IRA.
As an employer, a small business owner can contribute up to $56,000 in 2019. However, if you have any eligible employees beyond yourself, you must set up an account for every one and contribute the same percentage to everyone – including yourself – each year. Employees are fully vested in the money right away.
Depending on how your business is set up and how much you make, you could have both a SEP IRA and a Solo 401(k), in addition to contributing to the Roth IRA. Or you could consider other investment options.
There are requirements and limitations on all the different plans, as well as maximum contributions that change each year. It’s important to review the details and understand your own situation before moving forward with any strategy. “You should absolutely talk to a professional,” says Karras.
Executing a strategy
Freelance science writer and author Catherine Dold was single when she began writing for hire. She realized it was up to her to save for her future and began to focus on saving. “With freelancing, the money comes in spurts and you can’t count on it,” she says.
Dold developed a specific financial plan. For every payment, she puts aside 65 percent for salary, 20 percent for taxes, and 15 percent for savings. Whenever she hits her annual salary mark, she changes the formula to 80 percent savings and 20 percent taxes. “My taxes aren’t that much because I maximize my deductions,” says Dold. At the end of the year, any excess goes into savings.
She advises other writers to think about savings first. “I’ve known freelancers who would be excited about a big check, and they would go on a trip to Paris,” says Dold. “I would say, ‘Are you nuts – that’s your savings!’”
She also contributes to a Roth IRA and a Solo 401(k). Initially, she was saving but not investing well. She found a fee-only financial advisor and now feels peace of mind that she’s on a good path. “I would hate to pay someone a percentage of everything every year,” she says. “My advisor has an hourly rate, and that’s it. He doesn’t make any money off of the things he recommends.”
For people who don’t feel the need to talk to a professional, there are robo-advisors. Freelance personal finance journalist Dori Zinn worked hard to get out of debt from student loans and credit cards before she started saving for retirement. She uses a digital platform that offers personalized investment recommendations based on computer algorithms for her retirement planning.
“A robo-advisor is great if you’re trying to save for retirement without the added costs of someone managing it for you,” says Zinn. “It’s really great for writers who don’t earn a whole lot but still believe in the importance of saving for retirement.”
She likes robo-advisors because they’re hands-off and easy to manage. After you complete a questionnaire, your style of investing is crafted for you. For people who want to talk to a person, some robo-advisors have the option for a fee. You can set up accounts at many financial firms, such as Ally, Fidelity, and Wealthfront.
The bottom line
While each person will have her own strategy based on her own situation, one thing everyone can agree on is the need to start planning for retirement early. The earlier you begin to invest, the greater the power of compounding interest.
It’s also important to continue exploring retirement planning options. “It’s not a set-it-and-forget-it thing,” says Zinn. “It’s an ongoing, fluid process.” She also advocates finding a company that’s a fit and says if you’re not happy with your advisor or company, you should leave. “Find a company you like that charges minimal fees and helps you invest in ways you believe,” she says.
You should also remember to pay yourself first. “I think writers, including myself, love the craft and believe we’ll do it forever, but that doesn’t mean our income will last us forever,” says Zinn. Most writers she knows don’t think about their long-term goals or futures because they’re fixated on the here and now.
“Unless writers are financially savvy, most are so busy running their business, they don’t worry about themselves,” says Cassidy. “The more you make it a habit and pay yourself – whatever the amount – the more your contributions will add up over time.”
“People can be so scared and think ‘I’m going to live in poverty because I’m a writer.’ Not true,” says Karras. “We’re not doomed. But it’s important to be smart about the money you have.”
Jennifer L. Blanck is a freelance writer whose writing has recently appeared in Craftbeer.com, Toastmaster, USA Rice Daily, Whole Grain, and Wine Tourism Management and Marketing. You can find her on Twitter and Instagram @JLBlanck.