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Saving money for retirement can seem difficult when you have an unpredictable income. If you work for tips, earn money through freelance projects or make commissions from sales, you never know precisely how much income you’ll bring home each month.
An unpredictable income, however, doesn’t mean that you can’t save for your retirement. It just means that you have to pay special attention to the saving and investment methods that you use to reach your goals.
You should treat your retirement savings just like other items in your monthly budget. Set an amount that you know you can afford and make the contribution every month. Also look for ways that you can increase your retirement savings, as well.
If you don’t have room in your current budget, then you will have to make some changes. Perhaps you can cut down on your entertainment spending or start using coupons to save money at the grocery store.
If you’re self-employed, then you can invest money in a self-employment retirement account called an SEP-IRA.
There are actually a few types of SEP-IRAs that you can choose from. A profit-sharing plan lets you contribute a percentage of your annual income. A money purchase plan lets you invest a predetermined amount of money each year. Regardless of which option you choose, you get to contribute up to 25 percent of your net earnings up to $55,000.
Roth IRAs are good retirement investment options for people with unpredictable incomes because you don’t have to commit to a certain amount of money each year. As long as you don’t take money out of the account until you’re 59.5 years old, you don’t pay taxes on your withdrawals.
A Roth IRA will only let you contribute up to $6,000 per year (in 2018, at least. The amount will presumably increase at a future time). That’s considerably less amount than you can put into a SEP-IRA, but you still get significant benefits from a Roth IRA. On average, you can expect a return of about 7 percent. If you contribute the maximum $5,000 per year starting when you’re 29, then you will have nearly $800,000 when you retire at 65. The best online IRAs give you full control and access to your accounts, a multitude of investment options and low fees.
Retirement savings is a little more difficult for people with unpredictable incomes. When you take the right approach, though, you can save and invest enough money to enjoy a comfortable lifestyle during your retirement years.