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Military Retirement 201: Retirement Planning for Freelancers Thumbnail

Military Retirement 201: Retirement Planning for Freelancers

Retirement Funding

As a retired Senior Military Officer or NCO, you have a not insignificant amount of guaranteed income. That opens doors for you and gives you flexibility many of your civilian counterparts don't have. You may just want to work when you feel like it, doing projects you want to do. Enter freelancing.

Freelancing offers unparalleled freedom and flexibility, allowing individuals to craft their careers on their terms. In 2022, Fiverr, a leading freelance marketplace, predicted that 78% of companies would rely on freelancing rather than hire staff in 2023.1 Freelancing has undoubtedly increased since 2020, when many companies and employees learned that much work can be done remotely.

While it does offer more flexibility, freelancing also comes with considerations. One obstacle for freelancers is retirement planning. Unlike traditional employees with access to employer-sponsored plans, freelancers must proactively build their retirement nest eggs.

Let's explore retirement planning for freelancers and provide some practical steps and strategies to help them plan for secure financial futures.

Retirement Planning Challenges for Retired Military Freelancers

Your military retirement will make your retirement planning easier. That doesn't mean it will be the same as your buddy who became a Beltway Bandit. Freelancers face unique retirement planning concerns for a few reasons.

First, freelancers often experience fluctuating income, making it challenging to set aside consistent savings for retirement.

Also, many freelancers need access to 401(k)s or pensions, requiring them to navigate individual retirement options. Unlike employees who benefit from employer-matched contributions, freelancers are solely responsible for funding their retirements.

Retirement Planning Options for Retired Military Freelancers

Despite these challenges, freelancers have several practical tools and strategies. Here are a few options:

Individual Retirement Accounts (IRAs)
Freelancers can save for retirement using traditional or Roth IRAs.

With a traditional IRA, contributions are tax-deductible, growing tax deferred until withdrawal during retirement.

With a Roth IRA, after-tax contributions grow tax-free, and withdrawals in retirement are tax-free.

Solo 401(k)
The solo 401(k) is designed for self-employed individuals, allowing employer and employee contributions with higher contribution limits than IRAs. According to the IRS, a one-participant 401(k) is “a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse.”2 The IRS allows you to deem the First $23,000 ($30,500 if 50 or older) of net profit as wages and you can contribute the entire amount to a 401(k). Then you can contribute 25% (after adjustments) of the remaining net profit as profit sharing up to the annual Defined Contribution limit (see SEP-IRA below). The limits are for 2024.

SEP-IRA (Simplified Employee Pension)
A SEP-IRA offers a straightforward way for freelancers to save for retirement, allowing contributions as a percentage of income. A business of any size, even self-employed business owners, can establish a SEP. A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25% of each employee's pay.3

With a SEP, you can contribute as much as 25% of your net earnings from self-employment (not including contributions for yourself), up to $69,000 annually.4

Tips for Saving for Retirement as a Retired Military Freelancer

Setting aside funds for your retirement income can be difficult when working for yourself. Here are some tips to consider to help you prioritize retirement planning:

  • Set clear goals, whether a specific age to retire or a desired retirement lifestyle. This clarity will guide your savings strategy.
  • Pay yourself first. Treat retirement savings as a priority expense. Set up automatic transfers from your business account to your retirement account to make it easier.
  • Budget wisely and create a budget that includes retirement savings. Calculate a baseline budget using your lowest-earning months, then allocate more to retirement savings during high-earning months.
  • Diversify your investments to help mitigate risk.
  • Educate yourself on your retirement options.
  • Plan for healthcare expenses in retirement.
  • Understand tax implications of retirement accounts and contributions. Consult a tax professional to optimize tax benefits.
  • Regularly review and adjust your plan to stay on track.

By choosing the proper retirement accounts and educating themselves on their options, freelancers can confidently navigate the complexities of retirement planning. Your future self will thank you for your foresight and diligence in creating a financial foundation that supports your retirement dreams.

Military Finances are Different

Just like your military pension opens up the freelancing option, your military benefits make your financial planning issues different than your civilian counterpart's. That's why we think Active and Retired Senior Military Officers and NCOs should work with a financial planner or advisor that deals with your issues every day. If you'd like to find out how we work with people like you, use the button below to schedule a free initial consultation.

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  1. https://www.forbes.com/sites/jonyounger/2022/12/22/the-trends-shaping-the-freelance-revolution-in-2023/?sh=7b7ef1422a30
  2. https://www.irs.gov/retirement-plans/one-participant-401k-plans
  3. https://www.irs.gov/retirement-plans/plan-sponsor/simplified-employee-pension-plan-sep
  4. https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people
  5. https://www.kiplinger.com/taxes/hsa-contribution-limit-2024

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