I’ve been self-employed now for over six years. However, during that time, I haven’t contributed one red cent to my retirement account. It’s not that I haven’t wanted to. As Alison Griswold of Business Insider notes, “While the traditionally employed can enroll in company-sponsored 401(k) plans that make automatic, regular retirement contributions, self-employed workers don’t have this option. And nearly 70% of them are not saving sufficiently, according to a new survey of 2,014 U.S. residents from TD Ameritrade.”
With income at a premium, having to cover the employer side of employment tax, and adding in things like kid-costs, the housing market collapse, and other employment-related expenses, sparing extra money for funding retirement hasn’t been easy. This doesn’t mean that I don’t have a plan for the future though.
Rising retirement costs
It seems that lately, estimated retirement costs have been on the rise. Therefore, finding ways to combat such expenses can be critical to better retirement planning and potentially lesser dependence upon a regular retirement account.
One such cost is that of a mortgage. According to a Time.com business article, “In 1989, just 26.4% of all households were retired with a mortgage, according to data from the Federal Reserve’s Survey of Consumer Finances. That jumped to 46.5% by 2007, before receding a bit during the recession.”
Meanwhile, UPI.com notes that, “Nearly 2-of-3 U.S. adults in their 60s had debt in 2010, up from half of adults age 60 and older in 1998, a study found.”
To help make up for my lack of retirement savings, I’ve put more of an effort toward debt reduction. An infographic on creditloan.com puts the average American’s interest payments on debt at $600,000 over the course of a lifetime. By eliminating not only any consumer and educational debt, but mortgage debt as well, not only am I saving tens, if not hundreds of thousands of dollars in related interest charges, but making it easier to enter retirement debt free as well.
Low interest options forcing market participation
In the current economic environment, there just aren’t many options when it comes to getting good returns on savings. Savings accounts are hardly paying anything. Government savings bond rates are low. Many certificate of deposit holders are lucky to break 1 percent on their returns. This pretty much leaves the stock market as one of the few ways to get any sort of reasonable return on investment.
Setting a new goal that both reasonable and achievable
But the main issue with saving as a self-employed individual for me isn’t necessarily the lack of returns but the lack of funds upon which to earn a return in the first place. Therefore, I’ve come up with a new retirement savings goal that is both reasonable and achievable…just $50 a week.
$50 a week for both my wife and I to contribute to our retirement account doesn’t sound like much, but it equates to $5,200 a year. That amount applied and compounded annually to our retirement accounts at a 5.5 percent interest rate would eventually grow to nearly $400,000 in 30 years. It might not be a game-changing amount when it comes to our retirement, but it could certainly help bolster our financial situation as we head into our golden years.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Calculations have not been verified by a professional. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.