Home Personal Finance How a Solo Gig Can Give You a Stronger Retirement

How a Solo Gig Can Give You a Stronger Retirement

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Russ Eanes was burnt out at work and, just turning 60, wasn’t ready to retire. A former pastor of a Mennonite church, he worked as an executive at a religious book publisher for ten years before finding himself in the unfortunate role of helping shrink the organization.

“I’ve become very good at downsizing, but I’ve decided I don’t want my life to be defined by laying people off or selling buildings every few years,” he said. .

Dissatisfaction with his job, combined with the early death of his brother-in-law, prompted him to seek a new career path in 2018. ” He said.

Mr. Eanes was a hiker and cyclist who decided to build a new life around those interests and his own spirituality, working independently. His first move was to self-publish a book in 2019. Pilgrimage to Santiago Pilgrimage Route in Spain, then started a business aimed at helping other authors publish their books. The pandemic disrupted his plans for several years and forced him to temporarily return to full-time work, but now his publishing business is on the rise again.

“When you’re a writer, you have to rake in your income unless someone hires you full-time, and very few people have that anymore.”

Adding a few more years of work to your retirement plan is one of the best ways to improve your retirement security, and the best way to maintain an income in later life is to start the kind of sole proprietorship Mr. Eanes started. Some people think that it is the Lord. . Entrepreneurship can provide a bridge of income later into retirement. That income allows you to delay your Social Security claim and increase your benefits. It may also help you save for retirement.

There are many different types of entrepreneurship, but think of these businesses as a form of self-employment or gig work. Experts say such businesses can often start for as little as $5,000 to $10,000 to incorporate, create a website and brand identity, and install other essentials such as bookkeeping software. .

A key challenge is finding the right ideas for your business. That could mean continuing in your current field or pursuing a new interest. However, these sole proprietorship businesses also come with some financial challenges. The big problem is meeting the cost of living until the new business starts to turn a profit. “The big risk is that income will be at least temporarily, and possibly permanently reduced,” he said.The Great Money Reset: Change Your Job, Change Your Wealth, Change Your Life“And for many, the idea of ​​not getting a regular paycheck is a little daunting.”

And as an entrepreneur, you are responsible for paying all of your employer-subsidized benefits, such as Social Security payroll tax contributions, health insurance, and retirement savings accounts.

Schlesinger was inspired to write the book after seeing many Americans rethink their careers during the pandemic. “So many people are doing transitions and big resets,” she said.

Many Americans are surprised to have to quit their full-time jobs sooner than expected. Age discrimination, health problems, disability or unemployment, or the need to care for a loved one may intervene.

According to one survey, 46% of retirees this year reported leaving their jobs earlier than planned. investigation By Employee Benefits Institute. And there is a huge gap between expectations and the reality of how long people will keep working. One in three workers told researchers they planned to retire after age 70 or would never retire, but only 6% of retirees reported actually working past age 70. rice field. Only 11% of workers said they planned to retire by age 60, compared to 33% of retirees who said they had retired by age 60.

For these people, entrepreneurship offers one route to staying in the game.

“I don’t think people really know what their retirement will look like,” says Craig Copeland, director of research on wealthy benefits at EBRI. Twenty years later, they haven’t factored that event into their retirement plans. ”

For those accustomed to working full-time, not getting a regular paycheck may be the scariest change that comes along the entrepreneurial path. It requires careful planning. Most new businesses need time to generate revenue, so be sure to start with a cash cushion to pay for living expenses while you wait, says Freelance, who started a business that combines these pursuits eight years ago. Lance financial writer and compensation-only financial planner Roger Wallner advises.

Walner said people should have enough money to cover “three months to a year’s worth of expenses to make sure they can pay their mortgage.” However, your specific needs will depend on the type of business you start.

Schlesinger, who reports on the topic of personal finances for CBS News, advises researching all the resources currently at your disposal: salaries, bonuses, fees, savings, emergency funds and even retirement accounts. I’m here. Next, sort out your debt and other debts.

Employer-provided health insurance alternatives can be one of the biggest challenges facing individual entrepreneurs.

If you’re old enough to get Medicare benefits, you’re in luck. When enrolling, provide documentation from your employer confirming that you are insured after the mandatory enrollment age (65) to avoid harsh penalties for late enrollment.

Too Young for Medicare? You have several options.

First, if you have a spouse who is employed and has health insurance, consider getting that coverage. This is because the benefits of an employee group can be stronger than what an individual can join.

If that is not possible, your best bet is to use the Affordable Care Act replacement plan. When you turn 65, you must switch from the exchange to Medicare.

Income tax is not withheld on income received as an independent contractor. This means that you must estimate your annual income and then estimate and pay your federal and (possibly) state income taxes on a quarterly basis.

In addition to paying income tax, you will also be responsible for: self-employed tax, covers all contributions to Social Security and Medicare. The self-employed can deduct half of these expenses from their income tax.

Setting up your business as a limited liability company or S Corporation allows you to pay yourself through payroll, making it easier to separate your business and personal expenses.

Not only can you delay Social Security by working longer, but you also have the opportunity to increase your retirement savings. However, the matching contributions she received from her employer to her 401(k) are now lost. Beginning in 2027, players will be eligible for new federal head-to-head matches under the provisions of the Secure 2.0 Act signed into law late last year. Workers can be eligible for 50% matching directly from the federal government on contributions up to $2,000 in retirement accounts. The match will be phased out at various income levels, but single filers can qualify with an income of up to $35,500 ($71,000 for joint filers).

Self-employed people often find it difficult to automatically contribute a percentage of their income to their account on a regular basis because they may not be making payments to themselves on a regular basis.

A better approach going forward is to set more flexible goals for annual savings. That’s what Mr. Walner does in his own business. “I set goals for the year and plan for the year because some months his cash flow is better than others.”

You can also contribute to your personal retirement account, which has an annual contribution limit of $6,500 this year, plus an additional $1,000 if you’re 50 or older, and can be exceeded.

One option is the Simplified Employee Pension IRA. This is a type of traditional IRA that can only accept contributions from you, the employer. Usually up to 25% of his compensation, in 2023 he can contribute up to $66,000. Roth is allowed to contribute to his SEP-IRA for the first time under the Secure 2.0 Act.

Another option is a solo 401(k). These accounts are available only to the self-employed and their spouses employed by their businesses, and their business partners. You can make two types of donations, one as an employer and one as an employee. The employee contribution limit is the same as her 401(k) contribution limit for traditionally employed workers, which in 2023 will be $22,500 for him, or $30,000 for her if over 50. becomes.

The 2023 combined employee and employer contribution limit is $66,000 and $73,500 for those 50 and older. Solo 401(k) accounts can be set up to receive tax deferrals or Roth donations.

Self-employed people with health insurance plans with high deductibles can contribute to a health savings account. Although there is no employer matching, HSA can be used to pay for medical expenses and offers special tax benefits. Contributions can be used to cover deductibles and other out-of-pocket medical expenses. However, contributions can also be saved and invested for the long term. And the tax incentives are also attractive. HSA contributions are tax deductible, investment increases and interest are tax deferred, and withdrawals spent on eligible medical expenses are tax exempt.

Experts warn that the transition from a full-time job to entrepreneurship will not only take longer than expected, but will often involve twists and turns. “And where you end up is going to be different than you expected,” says Mark Miller. carrier pivot Guiding older employees in their career transitions. “Adaptability and resilience often end up in a different and better place than planned.”

Mr. Eanes learned that lesson soon after going solo. His first book sold well in late 2019 and early 2020 when the pandemic began. Sales then plummeted and all in-person book presentations were cancelled. “Every bottom fell out,” he recalled. “I was asking myself, ‘What am I going to do now?'”

He coordinated by hosting a book presentation online, then got a full-time job at a company that offered online courses for seniors. He taught classes on writing and self-publishing as well as technology.

Earnes was able to quit his full-time job last year, cut back to a handful of online courses, and get back to writing and consulting.

He is currently enrolled in Medicare and plans to claim Social Security in September when he reaches full retirement age. “I have the best health insurance I’ve had in 20 years. Social Security is a great income backup to help me continue writing and consulting,” Eins said. He also travels and wants to start a trekking tour in Europe.

Entrepreneurship gave him the bridge to Social Security and Medicare he needed since his early 60s, but it didn’t stop there. He sees work and retirement as the perfect combination. “This is a great way to stay active and bring in the extra income you need.”

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