8 Retirement Savings Ideas for Sole Traders and Freelancers

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The digital age has brought many conveniences to modern life, including work flexibility. Millions of Australians are taking advantage of this fact by swapping the standard 9-5 office routine for the freedom of self-employment. Many recent studies show the number of freelance workers has sharply increased over the last decade. The combination of a more advanced “gig economy” along with the COVID-19 pandemic, seems to point towards an ever-growing number of sole traders. 

It’s obvious to most people of the wonderful perks self-employment brings. Things like being your own boss, skipping long commutes, making your own schedule, and selecting clients or projects you enjoy are all appealing aspects of being a freelancer. Of course, you must consider the pitfalls too. The top challenge of sole traders is the lack of a financial safety net like vacation or holiday pay, sick pay, job security, and pension planning. 

Government studies in the UK suggest that up to 45% of freelance workers between ages 35 and 55 don’t have a private retirement account. In comparison, an estimated 84% of UK employees do have pension plans established by their employers. Most other countries, including Australia, are on trend with these same statistics. Perhaps simply the ease of signing up for a pension plan sponsored by a large corporation makes participation more appealing for employees. 

For those professionals that become their own boss, they may find there are way too many other priorities taking up their time. Sole traders may just be guilty of pushing off signing up for a retirement account because they just don’t have enough time to do so. With that in mind, we’ve put together a list of things self-employed workers can do to make sure they’re financially ready for retirement. 

1. Make sure you aren’t overspending on insurance

Business insurance can be one of those big, ongoing expenses that sole traders find frustrating. The money is going towards the policy, but it doesn’t always seem like you’re getting the benefits you deserve. If you could save some of that premium, maybe you could put it into your retirement savings account instead. 

Take a few minutes to be sure your public liability insurance is the most cost-effective plan possible. You’ll also want to be sure the coverage you have is all that you need. 

Make your life easier by doing some comparison shopping at Public Liability Australia’s website. Take a few minutes to get a public liability insurance quote and coverage details sent right to your inbox. Or call a Public Liability Australia agent today to get your new public liability policy set up right away. 

2. Figure out how much money you’ll need for retirement

The first step to take is evaluate your current financial needs and then determine what your future needs might be. It’s been reported that most people need around 70% of their current salary to live a comfortable retirement. However, the amount you’ll need will mostly depend on your lifestyle and personal circumstances. 

When you’re figuring out how much pension money to save, you’ll also need to think about: 

  • Your preferred retirement income
  • How long you must save before retirement
  • What you can afford to save right now

You’ll find plenty of free online pension calculators, as well as retirement planning apps. Either of these platforms can help you crunch the retirement numbers. You’ll simply need to enter your current age, the age you’d like to stop working, how much money you have saved now, and how much income you’ll need each year to support yourself. The software or app will then tell you how much pension money you should put aside each month, as well as give you a clear snapshot of how your retirement years may be.

3. Start saving now, not later

The more time your pension money must grow then the bigger your final account balance. That’s why it’s always best to start saving for retirement as young as possible. Compounded interest on pension plans can turn a small amount of cash into a big nest egg for your golden years. The longer you wait to save retirement money, the bigger amount of your current salary you’ll have to sacrifice monthly. The pressure to have enough pension funds could become quite overwhelming. 

4. Use tax breaks to maximise your savings

The government offers generous tax breaks to encourage workers to save pension money. Find out how much self-employed Australians can save each year towards retirement and still receive a tax relief. You can talk with an accountant or contact the Australian Tax Office (ATO) for more details. 

5. Tax breaks for limited companies

If you’re a sole trader who’s also in charge of a limited company, you can use your business to pay employer pension contributions. Retirement contributions count as an allowable business expense, which means you can use the payments to lower your corporation’s total tax bill. This is a great perk worth exploring! 

6. Consolidate old pension plans

Before you became self-employed, you probably had a few corporate jobs earlier in your career. Did you enroll in any of your former employer’s workplace pension plans? Did you consolidate those old pension plans? Or are they just sitting somewhere untouched? 

If you do have a few old retirement plans, then it’s in your best interest to contact your old employer about accessing those funds. Once you do, then transfer the old pension accounts into one current pension account where you can get better growth. 

Old retirement accounts that are just sitting idle aren’t making you money. If you want to have a generous retirement income, it’s time to make that “old money” work for your future. 

7. Decide which pension plan is best for you 

There are a few different types of self-employed pension options available. You can decide which retirement account is going to be best for you and your needs. 

Below are two of the most common retirement savings plans. 

Personal pension: This plan lets you make regular contributions on an as-needed basis. The value at the time of retirement will be based on the amount of money you saved and how it was invested. For instance, a SIPP (self-invested personal pension) lets you invest the money in a broad range of assets. You get to decide how your pension money gets invested. You can even opt for a professional money manager to overlook your pension account. 

Stakeholder pension: This scheme usually has a maximum gross contribution of $20 and fees are normally capped, for the first 10 years, at 1.5% annually.

All retirement accounts have value and you’ll want to explore all your options to find the best fit. If you’re uncertain how to figure everything out, be sure to talk with a professional financial planner or accountant. Don’t wait another day because the longer you do then the less money, you’ll have in your pension account for retirement. Now that you are a freelancer or sole trader, it’s even more important that you have an excellent plan prepared.