You’re living the dream, putting words on the screen and turning them into cash. While you may be envy of friends and family right now, fast-forward a few years. Those 9-to-5ers have a solid nest egg stocked away in their retirement accounts. They’ve had employer-matching contributions, regular raises and annual bonuses to propel them toward a relaxed retirement. These are seemingly baked into the 9-to-5 experience. How can writers prepare for retirement?
How Can Writers Prepare for Retirement?
Some of the same reitrement preparements that 9-to-5ers use are available to writers as well. However, a few more suitable to writers. How can writers prepare for retirement?
Contribute to Your Retirement Accounts
Several types of self-employed retirement accounts are available. Your bank may be one of many that offer individual 401(k) retirement accounts. You can also research the benefits of investing in a SIMPLE IRA or SEP IRA. One of the challenges associated with saving for retirement as a writer is the fluctuating income. Regardless of whether you’re a content writer, a novelist or a blogger, your income could fluctuate by thousands of dollars from one month to the next. Automating your contributions to a retirement is challenging, and this is especially true if you want to max out your contributions. A comfortable contribution in May may be impossible in June or July.
The solution is to set up the minimum level of automatic contributions that you can afford based on your last year’s monthly income. Then, make large contributions when you get a huge royalty check or have some other type of cash injection.
If you currently have a high-deductible health insurance policy, you can also set up an HSA account. Many people use an HSA account for immediate purposes. The account allows you to pay for healthcare expenses with pre-tax dollars. However, this changes after you’re 65. At that time, the funds can be accessed for any purpose. By contributing more than the minimum required to cover your annual healthcare expenses and investing the funds in your HSA account, you can have another nest egg in retirement.
Create Income Ladders
An income ladder is an asset that that produces regular income in regular intervals. Some of the assets that work well with laddering are CDs, bonds and even peer-to-peer lending. It works by purchasing the assets so that they mature on a weekly, monthly or quarterly basis, based on your needs. The proceeds at maturity can throw off essential income needed in retirement without impacting the principal. This means that the principal can be reinvested so that it continues to generate income.
To build your ladders before retirement, purchase the assets at regular intervals, reinvest the principal and interest, and increase the principal with continued purchases until retirement.
Build Passive Writer Income Streams
One of the great things about being a writer is the ability to create passive income with our talents. The most obvious type of passive income as a writer is book royalties. This can include fiction and non-fiction books and e-books. Passive income can also come from the sale of digital products. These can be sold on your website, Etsy, Patreon or any number of other platforms. You can also generate some ad and affiliate income from your website for a period of time.
Generally, however, you can expect these income sources to slowly decrease over the years. Nonetheless, the income provided earlier in your retirement can minimize your retirement account distributions (except for meeting the minimum required by the IRS), allowing those funds to continue growing for several more years.
Pay Off Debt
A hallmark of retirement planning, regardless of your employment status, is to pay off as much debt as possible before retirement. Ideally, you’ll start retirement with a paid-off house, a high-quality vehicle without a car payment and no credit card of medical debts. This establishes your monthly expenses as low as possible, allowing you to live comfortably on less income.
So, should you eliminate debt as soon as possible or start contributing more to your income ladders and retirement accounts? You’ll need to carefully analyze your current situation to determine the answer. It may also be helpful to speak with a retirement planner. The bottom line, though, is that you need to find a strategy that allows you to meet your income, savings and debt reduction plans. All are essential.
Update Your Plan Frequently
If you don’t have a retirement plan yet, that’s the first step. A key aspect of writer retirement planning includes preparing a budget for the future, outlining all of the objectives you need to meet to get there. Then, you need to set the wheels in motion to meet those objectives, starting today. There are various calculators available for paying off your mortgage early, calculating the future value of your accounts and more.
While your plan is a map to get you from Point A to Point B, you’re working with fluctuating factors. Will your IRA yield a solid 8 or 10% return every year? Will inflation hold at 3%? Will your healthcare needs change, impacting your future healthcare costs?These are only a few of the factors that you need to review annually. Make modifications to your plan as needed will help you reach your goals.