November 8, 2021

How to retire early when working as a freelancer

Written by Martin Baxter

Welcome to the next in our series of articles on freelancer goals – where we look at the big-picture strategic targets that you might be working towards as a freelancer and think about how to make them happen for you and your business. So far in this series, we’ve explored how to grow your work as a freelancer and how to specialise as a freelancer. In this guide, we’re looking at a slightly longer-term goal – how to retire early when working as a freelancer.

Okay, we understand if you’re sceptical about this one. Lots of those click-baity articles on how people retired early are thinly-disguised Ponzi schemes or rely on you being given a house by your parents. Early retirement seems like a dream for most freelancers. But if it’s a goal you really want to work towards, having the flexibility of a freelancer’s workload, the ability to specialise, build experience, set your own rates and cherry-pick clients, can all potentially help you get there faster than you would if you were in traditional employment.

How to retire early as a freelancer

Whether you’re planning early retirement to spend more time with loved ones, travel the world, or enjoy your hobbies, making the dream a reality is going to take hard work, strategic thinking and a lot of careful financial planning. Here are our top tips for freelancers planning for a fuss-free future of early retirement.

Understand how pensions work

Having a freelancing income means that your pension is your responsibility, not your employers, but this does offer up a bit more flexibility in how you build your savings and investments into a retirement fund. We’ve already put together a blog on the knowledgebase covering all the basics of pensions for freelancers. The problem is that a lot of freelancers don’t regularly pay into a private pension – in fact, IPSE estimates that 45% of self-employed workers between the ages of 35 and 55 have no private pension. Even if you’re not seeking early retirement, this is something that you should start to think about as early as possible in your freelancing career.

There are two main types of pension: your State Pension – which is paid by the government based on your National Insurance contributions across your working life, and private pension schemes, which you set up and pay into as an individual. There are many different pension products on the market, so there’s bound to be something that suits your saving levels and retirement goals – a conversation with an independent financial advisor can help you choose a scheme that will match your needs and give you a good return on your investment.

Think about when you want to retire

Like any future planning, early retirement requires you to work backwards. You’ll need to think carefully about:

  • When you would like to retire – this tells you how many years you have to save towards your goal.
  • How much income you would like/need in retirement – if you’re planning a more lavish retirement filled with world cruises and champagne breakfasts, you’ll need to save accordingly.
  • What you can afford to save each month – you’ll need to make sure your current living expenses are covered. Remember you might be able to save more as you progress in your career if you start to earn more.
  • Other information about your assets and debts – for example, if you have a mortgage, when do you expect to pay this off?

Review your government pension

Providing you have paid enough National Insurance over your working life, all freelancers should be entitled to a basic state pension. You can input your details on the Government website to check how many qualifying years you have so far and see estimates of your retirement age and weekly payments.

  • If you are missing any years of contributions you can usually make voluntary NI contributions to make up the gaps so that you are eligible for the full amount.
  • If you take time out of the workforce to care for young children make sure you claim Child Benefit in your name as this will ensure your Class 3 National Insurance contributions are covered until your child is 12.

A state pension can factor into your projected future income, but, alas, you can’t use the money to retire early. You cannot claim it before State Pension Age – currently 68 and being reviewed further – which is why a private pension or other investments are essential if you’re looking to finish work earlier. A state pension is also only a very modest income – currently £179.60 a week, or just over £9.300 a year. So unless you are planning a very lean retirement, you will want to make sure you have extra savings to use as income.

Look at ways to save

Planning an early retirement in the future might mean having to make sacrifices about what’s important to you right now in terms of lifestyle. The more you can reduce your outgoings now, the more you are able to plough into savings to help you meet your goal. We’ve got some tips on freelance money saving here on the blog. If early retirement is a goal, that might mean prioritising saving above luxury purchases, OTT takeaways and five-star holidays.

Maximise your income

Planning an early retirement may mean you have to work more intensely during other points in your career. One of freelance life’s biggest perks is its flexibility. We often think of this as the ability to take time off when you need it or to take on fewer projects if you need to accommodate caring responsibilities, for example. However, it also can mean that you can super-charge your working schedule to maximise your earnings, taking on extra work where you can to increase your monthly earnings – something that it’s often not possible to do in a standard job. Make sure you are careful with this though. Don’t take on so much that you burnout and have to take time off to recover, or start making sloppy mistakes that might lose you clients. It’s about finding a balance that’s sustainable for you.

Find the best pension for you

There are so many private pension schemes around, and there are also other ways of investing for retirement, that it can be impossible to navigate on your own. We’d always recommend speaking to an expert like an independent financial advisor, who will have an in-depth knowledge of all the products and services out there to support your retirement goals. They’ll be able to review your current financial situation and put together a plan with you.

Get business insurance

A claim against you for a mistake you’ve made in your work, or an accident you’ve caused could eat into your earnings and savings. Protect your hard-earned cash and your retirement plans by making sure you and your business are properly protected against the risks of freelancing. Dinghy provides public liability, professional indemnity and business equipment insurance all tailored to the needs of freelancers. You can even save money by turning your cover off if you’re not working – which helps if you’re trying to watch those pennies. It couldn’t be easier or quicker to get a quote – simply head along to our website, input a few details and we’ll sort out the rest.

Always speak to an expert if you’re making big financial decisions like a pension. This is a guide for general research and information only and shouldn’t be seen as financial advice.

About Martin Baxter

Read more blog posts by Martin Baxter


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