Small metros might have cheaper living but not a lot of job opportunities

Freelancing is a tenuous approach to employment, made all the more so by a profound lack of amenities usually offered by more stable arrangements – chief among which is a retirement fund. It can feel impossible, especially when your business suffers amidst a pandemic, so some of what follows can be ignored until the ship isn’t sinking, but don’t wait a minute longer than that – deal?

So there are several schools of thought regarding the best way to start saving and where you should put your money, but the bottom line is that, if you’re a freelancer, you should be allocating your own retirement funds. Here are some ways to do just that.

Before you can even get into the weeds of how to invest in retirement, you should have a parachute in case things go sideways. My Bank Tracker suggests starting with an emergency fund of $1,000, adding to it as you can until you have anywhere from 3 to 12 months of expenses covered.

This serves two purposes: ensuring that you’ll have the luxury of time if you need to perform an abrupt job hunt, and establishing how much you can safely put away each month without jeopardizing your business or standard of living (within reason).

Having a relatively large sum of money on hand for emergencies is always good, and if you never have to use it for the purpose for which you set it aside, it can supplement your retirement whenever you decide it’s time to cash in.

My Bank Tracker also suggests storing your emergency fund using a “high-yield” bank account, such as an online savings account, rather than sticking with traditional, low-interest savings options.

You also need to plan for taxes, which in addition to whatever your tax bracket percentage is, includes allocating 15 percent of your income to pay Social Security and Medicare. This means that you’re probably putting aside a pretty hefty sum (at least 30%) each month.

Once you’ve established your emergency fund and planned for taxes, you should have a general idea of what your wiggle room looks like vis-a-vis saving for retirement.

The actual saving part of retirement entails investment in a retirement account such as an IRA, Roth IRA, a 401(k), or a pension plan (referred to as a “defined benefit plan”).

Each of these account types has benefits and drawbacks depending on your situation.

• A Roth IRA will allow you to contribute a certain amount each year, and you can usually set up an account quickly from a variety of online locations. The money that goes into a Roth IRA is post-tax, meaning you don’t have to pay tax on the retirement funds you pull out. Your income, however, can disqualify you from investing – if you earn above a certain threshold ($140,000 in 2021), you won’t be able to use a Roth IRA.
• Other IRA options exist as well, each with a cap on how much you can contribute per year and varying tax requirements. For example, a traditional IRA account requires you to pay taxes when you withdraw the money, and there’s an upper limit on how much you can contribute.
• A SEP IRA is similar, but the upper limit on investment is substantially higher – and you need to be self-employed (or an employer) to have one.

Nerd Wallet also points out that a 401(k) is a reasonable option for self-employed people who don’t employ anyone else, especially if you plan on saving “a lot in some years — say, when business is flush — and less in others.” 401(k) accounts allow you to put up to a certain amount ($58,000 in 2021) in each year pre-tax, and you pay taxes on withdrawals whenever you start pulling out money.

More eccentric retirement options exist as well. Taxable Brokerage Accounts let you invest in stocks and securities through a brokerage, and you’re able to use the money whenever you please – but you’ll have to pay taxes on your gains each year, which can become expensive in the long run.

And defined benefit plans are expensive and entail high fees, but they allow you to set up a pension with high investment opportunities as opposed to some of the lower-investment options.

Whichever option (or options – you can always invest in multiple accounts) you choose, make sure you’re saving for retirement in some capacity. And remember that these accounts represent exponential growth, meaning that the sooner you start saving, the better off you’ll be when you begin your retirement journey.