Many self-employed people have control over the hours and days they work. This schedule flexibility is more similar to retirement than a 9-to-5 job. Starting a business, even if you are only making comparable or less income compared to a salaried position, is great for retirement readiness. Here’s how working for myself is helping me to prepare for retirement:
There’s a ton of flexibility. While I am still working many hours per week, waking up early is optional. If a friend wants to meet, I am pretty much always available because I can simply get everything accomplished later that night. No one is yelling at me, even if I dress like a bum all day. Retirement certainly shouldn’t be as busy as my schedule is these days, but the increased freedom in how I spend my time closely resembles what retirement is like.
Less stress. The freedom to choose when and how I work relives so much stress that I don’t necessarily dread working anymore. There’s a huge productivity boost that comes with enjoying your work. I may even want to work longer than I would have if I were slaving for a supervisor at a typical 9-to-5 job. In fact, working for myself might come out ahead even if I earn less than a regular job.
Better retirement options. Pension plans offer a very good value for retirees who worked for the same financially sound company for decades, but benefits are shrinking and fewer companies are offering this option. When it comes to other tax-deferred options, freelancers and other one-person small business owners have a wealth of options, including SEP IRAs, individual 401(k)s and even personal defined-benefit plans. These setups have different contribution rules, but they all offer a higher possible contribution amount than the typical 401(k) account offered to salaried employees.
The investment options are generally better. I am free to choose the company that acts as the custodian to my retirement assets. When you work for a company, you are tied to whichever firm the human resources department chooses. For some big companies, the options can be amazing, but the 401(k) plans at smaller companies are often filled with subpar investment choices. Now, I can have the exact same asset allocation at a much reduced cost because I can just buy low cost ETFs covering the same asset classes.
I’m spending more meaningfully. Starbucks used to be my comfort drink because I would convince myself I deserved one after long stressful days. But I never actually enjoyed the drink because I was just trying to convince myself that life is better than it is. Now I still regularly pay for a cup of joe, but I actually enjoy the purchase because it’s completely a luxury and not a relief valve.
I actually have time to optimize my finances. Now that I’m not fielding stressful calls at all hours of the day, I actually have the time and energy to think of ways to optimize my finances. When a competitor is offering a better and cheaper product, I am not afraid of the hassle of switching providers. Making changes to your Internet service, investments and car insurance can often result in lower monthly bills. The changes might seem small, but the difference is huge because I’m able to invest the excess cash and let it compound for decades.
Working for yourself is certainly appealing to adventurous people, but those who like structure can still benefit. No one is stopping you from establishing your own set schedule. And that’s the point. You will be fully responsible for your time when retirement comes, so why not start a little early and take a test drive?
David Ning is the founder of MoneyNing.com .
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Using Self-Employment to Transition to Retirement originally appeared on usnews.com
