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  1. #1
    Pragmatic Programmer halfasleeps's Avatar
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    How do freelancers retire?

    I'm curious, if someone is a freelancer and works for himself will that person have to work forever or is there a way to retire?

    Sure if they make so much money and become rich they can retire anytime they want. but im not talking about that, what about a freelancer that only makes enough to pay the mortgage and isnt loaded, is there a way he can retire?

    thanks
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  2. #2
    SitePoint Addict Jamieharrop's Avatar
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    That's what a pension is for. Whether your a freelancer or an employee, a pension is a must.
    Regards,
    Jamie Harrop

  3. #3
    SitePoint Wizard bronze trophy
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    Start investing your money in things like pensions, property, shares etc etc. How does anyone cope with retirement if not for their investments?

    And if you aren't earning enough to save for a pension, best start working out how to increase your income, fast

    The 3 ways to increase your earnings by 50%:

    1) Increase your prices by 50%
    2) Increase efficiency by 50%
    3) Work harder - do 50% more work each week

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    Word Painter silver trophy Shyflower's Avatar
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    In the US, freelance is a business. You can be a sole proprietor or incorporate (or take on a partner), in any case, if you report your income you must pay both your half of the social security taxes as well as the "employers" share. Optimistically, social security will still be around when you retire and you'll get the same "wonderful" benefits that today's seniors do. (That was sarcastic by the way )

    Additionally, you can open an IRA that is your retirement pension. The best thing to do if you are freelancing is to consult with a CPA who can help you understand your retirement options. Then go find a good financial advisor who can counsel you on the best investments for your income level.
    Linda Jenkinson
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  5. #5
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    There are lots and lots of options. Contrary to popular belief, there are more options for retirement savings for business owners (or freelancers) than there are for full time employees. The full-blown 'pension plan' is mostly a thing of the past, but you'll find that the limits for 401k's, IRA's, etc. are much more generous when you're working for yourself.

    If you can save, you can retire well.
    The fewer our wants, the nearer we resemble the gods. Socrates

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  6. #6
    Non-Member demosfen's Avatar
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    Work forever sounds about right, at least it has been my plan so far. Either that, or save. Social Security will go bankrupt long before most of us retire and I am seriously considering filling out papers to drop out. Can use extra money for investments

  7. #7
    Webwellwisher Robert Warren's Avatar
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    There are also plenty of marketing and PR firms today that started as freelance outfits. Work hard and long enough, and soon you find that you're hiring an assistant to help you out. Then office space. Then a vice president. Pretty soon you're just stopping in once in a while to make sure the place hasn't burned down.

    Like Shy said, freelancing is a business (at least in the U.S.). Keep growing, keep tackling better jobs and recruiting better clients, and eventually the business itself becomes the investment for retirement.

  8. #8
    Serial Publisher silver trophy aspen's Avatar
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    and I am seriously considering filling out papers to drop out. Can use extra money for investments
    You can do that? Not that I share most of your views, but I definitely agree that SS is going to go bankrupt before I need it unless it is drastically changed. I don't plan on needing it anyways so I'd like to opt out if it'd save me that nearly 15% in taxes.

    Onto the original question...

    In any line of work if you're living from paycheck to paycheck you aren't going to retire well. Save more money. You should have enough money to live on for atleast 6 months in short term liquid assets (stocks, money markets, savings accounts) and then you'll want atleast around 1-2 million saved up by the time your retire, if you want to stop working entirely. Assuming inflation doesn't get out of hand and you don't mind living relatively cheap.
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    ☆★☆★ silver trophy vgarcia's Avatar
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    Quote Originally Posted by aspen
    You can do that? Not that I share most of your views, but I definitely agree that SS is going to go bankrupt before I need it unless it is drastically changed. I don't plan on needing it anyways so I'd like to opt out if it'd save me that nearly 15% in taxes.
    If you're Amish you can opt out of social security and medicare. But that's the only exception I know of.

  10. #10
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Quote Originally Posted by aspen
    You can do that? Not that I share most of your views, but I definitely agree that SS is going to go bankrupt before I need it unless it is drastically changed. I don't plan on needing it anyways so I'd like to opt out if it'd save me that nearly 15% in taxes.
    Chris - Would elimination of SS really reduce your taxes 15%? For that to be true, you'd have to be paying SS on 100% of your income (roughly speaking) which is avoidable with a good corporate structure. I think you probably know your way around the tax world, but don't you have a payroll/distribution model where you are only paying payroll taxes and social security on a relatively small salary while the rest of your revenue is paid to you in the form of cash distributions, etc? Probably you know all that, but when I see successful self-employed people paying 15% to SS, it makes me cringe!!! One of the best things about being self employed is that you don't have to pay as much tax as the full timers.
    The fewer our wants, the nearer we resemble the gods. Socrates

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    SitePoint Wizard davidjmedlock's Avatar
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    Quote Originally Posted by Sagewing
    Chris - Would elimination of SS really reduce your taxes 15%? For that to be true, you'd have to be paying SS on 100% of your income (roughly speaking) which is avoidable with a good corporate structure. I think you probably know your way around the tax world, but don't you have a payroll/distribution model where you are only paying payroll taxes and social security on a relatively small salary while the rest of your revenue is paid to you in the form of cash distributions, etc? Probably you know all that, but when I see successful self-employed people paying 15% to SS, it makes me cringe!!! One of the best things about being self employed is that you don't have to pay as much tax as the full timers.
    Sounds like I need to talk to your CPA. I paid about $0.30-$0.32 on every dollar I made last year... I've been a bit more careful this year, but I've been considering the corporate route.

    <--- Adds "Call Good CPA" to "To-Do" list...

  12. #12
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    Quote Originally Posted by Sagewing
    ...don't you have a payroll/distribution model where you are only paying payroll taxes and social security on a relatively small salary while the rest of your revenue is paid to you in the form of cash distributions, etc? Probably you know all that, but when I see successful self-employed people paying 15% to SS, it makes me cringe!!! One of the best things about being self employed is that you don't have to pay as much tax as the full timers.
    Can you provide a link or explain this a little more? Are the cash distributions paid out and taxed as capital gains, or what? My accountant and I may be making you cringe!

  13. #13
    Serial Publisher silver trophy aspen's Avatar
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    Chris - Would elimination of SS really reduce your taxes 15%? For that to be true, you'd have to be paying SS on 100% of your income (roughly speaking) which is avoidable with a good corporate structure. I think you probably know your way around the tax world, but don't you have a payroll/distribution model where you are only paying payroll taxes and social security on a relatively small salary while the rest of your revenue is paid to you in the form of cash distributions, etc? Probably you know all that, but when I see successful self-employed people paying 15% to SS, it makes me cringe!!! One of the best things about being self employed is that you don't have to pay as much tax as the full timers.
    Yes. I used to pay both halfs, now with my s-corp I pay half and my business pays half. But the half my business pays come directly out of my profits so for all practical purposes I'm still paying it. I do also pay myself a salary now, and do the rest in dividends, so that saves some, but on the part I pay its still 15%.
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  14. #14
    Non-Member demosfen's Avatar
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    Quote Originally Posted by aspen
    You can do that?
    Technically you can, but there are some issues. This is what I figured so far. There is a form at SSA.gov called Requiest for Withdrawal of Application. The procedure seems to be sending a notarized statement to SSA, saying that you are rescinding your signiture under SS benefit application and refusing SSN, and attaching Request for Withdrawal of Application to it. (If application for SS was made by your parent, s/he will be the one to sign this statement)
    Just sending Request for Withdrawal of Application seems to make you ineligible to draw benefits, but you still would be required to pay SS taxes, because tax liability is created by having SSN rather than accepting benefits. So it has to be deactivated.
    Now the problem is that you will no longer have a SSN, and it's tied to many things. Like, if your state requires SSN to get a driver license, you'll have to get your license from a state that doesn't, etc. And after 9/11 it's difficult to open a bank account without SSN. You can cash checks under $1000 without bank account through alfii.com, but I don't know about checks over $1000. I think depositing them into your wife's/friend's account shouldn't be a problem, as long as you declare them on your tax return

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    Word Painter silver trophy Shyflower's Avatar
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    Quote Originally Posted by demosfen
    Technically you can, but there are some issues.

    No you can't. The request for withdrawal is if you have filed an application to begin receiving your benefits at retirement and change your mind. It doesn't give you the ability to with hold earnings from Social Security nor does it allow you to "drop out" of the loop. If you read the whole form, you should have understood that.
    Linda Jenkinson
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  16. #16
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Ouch.. you shouldn't have much problem reducing that... You aren't doing you're own taxes, are ya?
    The fewer our wants, the nearer we resemble the gods. Socrates

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    SitePoint Wizard davidjmedlock's Avatar
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    Quote Originally Posted by Sagewing
    Ouch.. you shouldn't have much problem reducing that... You aren't doing you're own taxes, are ya?
    No, I was smarter than that last year. The guy that did my taxes is very experienced (used to be an IRS auditor, has been a CPA for 30+ years), but I didn't do a very good job of tracking my expenses and such since it was my first year as being completely self employed. This year should be quite different...

  18. #18
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    How does deactivating your SSN exempt you from the requirement to pay SSN on your payroll or income?
    The fewer our wants, the nearer we resemble the gods. Socrates

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    Non-Member demosfen's Avatar
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    Yes but like I said, the important part is that you would attach it to a letter rescinding your SSN. It's having SSN that creates SS tax liability, not the fact that you accept benefits. The real issue is the inconvenience of handling things like money and driver license (in states that require SSN to get one) without having SSN

  20. #20
    chown linux:users\ /world Hartmann's Avatar
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    Quote Originally Posted by demosfen
    Yes but like I said, the important part is that you would attach it to a letter rescinding your SSN. It's having SSN that creates SS tax liability, not the fact that you accept benefits. The real issue is the inconvenience of handling things like money and driver license (in states that require SSN to get one) without having SSN
    I don't think the benefits of slightly less taxation (supposedly) outweighs the inconvenience of not having the number. The general assumption that Social Security will be bankrupt in the next few years is also slightly false. Recently the availability of social security has increased and there are still studies being done to determine its estimated life.

  21. #21
    Non-Member demosfen's Avatar
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    Quote Originally Posted by Hartmann
    I don't think the benefits of slightly less taxation (supposedly) outweighs the inconvenience of not having the number. The general assumption that Social Security will be bankrupt in the next few years is also slightly false. Recently the availability of social security has increased and there are still studies being done to determine its estimated life.
    I have 37 years before reaching retirement age, so it won't make much difference whether SS goes bankrupt in 10, 20, or 40 years. In any case, it's a lottery any way you look at it, I'd rather not buy lottery tickets with my retirement money
    You are right about the inconvenience of not having the number, if it wasn't for that I would be out of the system by now.

  22. #22
    Serial Publisher silver trophy aspen's Avatar
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    Recently the availability of social security has increased and there are still studies being done to determine its estimated life.
    Who needs a study. Less people paying in, more people taking out == problem.
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  23. #23
    chown linux:users\ /world Hartmann's Avatar
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    Quote Originally Posted by aspen
    Who needs a study. Less people paying in, more people taking out == problem.
    I don't agree with a study being done but your assumption of more people taking out than putting in is based on what the news tell you. SS has always been this way except at the beginning there was no one taking out, only people putting in.

    We were put in a "frenzy" over SS and people bought into it. It was a great election issue. Yet, I digress from the topic of this thread and move into an area of politics and I will just leave it at that.

  24. #24
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Quote Originally Posted by aspen
    Yes. I used to pay both halfs, now with my s-corp I pay half and my business pays half. But the half my business pays come directly out of my profits so for all practical purposes I'm still paying it. I do also pay myself a salary now, and do the rest in dividends, so that saves some, but on the part I pay its still 15%.
    Ahh.. well, as expected you're already dividing your income (actual) between dividends (shouldn't this be a distribution rather than a dividend??) and ordinary payroll income, so you should only be paying FICA/SS/etc on both sides of the payrolled income. That effectively puts a cap on your exposure to SS tax, and some people (but not me) push that to the limit by giving themselves a too-low salary. I think that once you reduce your SS-taxable income to around 70k, you simply have to pay the TAX on that much. But, your earnings beyond that amount shouldn't increase your liability as it pertains to SS tax.

    Quote Originally Posted by aspen
    Who needs a study. Less people paying in, more people taking out == problem.
    That is true, but couldn't I extend it like this:

    Who needs a study. Less people paying in, more people taking out == problem. Problem != bankruptcy.

    Sure, there is a problem. But, that's lke saying that since the US is facing some likely inflation over the next few years, you should move all of your money out of dollars. Things are rarely that simple.

    Case in point: people who pitch gold/silver as a great investment. Sounds good, but the math never adds up. It's been going on for 100 years, and if you look at gold values over any period longer than 3 years, it's a crap investment.
    The fewer our wants, the nearer we resemble the gods. Socrates

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  25. #25
    King of Paralysis by Analysis bronze trophy
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    Quote Originally Posted by aspen
    Who needs a study. Less people paying in, more people taking out == problem.
    And people taking out longer as they live longer == problem

    SS was never truly designed to be used, people would die off before they could collect. Now we live to be 90, that's a problem.


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