For freelancers and self-employed workers, saving for retirement requires one to be especially proactive and hands-on - which can be a stressful process. Where do you start?

The gig economy has grown amid COVID-19, providing many - especially those in hard-hit industries like tourism and aviation - with a lifeline as their regular sources of income dried up.

But many self-employed persons face a problem: Income fluctuation. This is the number one stressor for individuals like real estate and insurance agents, part-time drivers and freelance photographers who do not earn a fixed monthly income.

The income irregularity and lack of job security means life can be feast or famine. Many also miss out on salaried employee benefits such as medical coverage, personal insurance and Central Provident Fund (CPF) contributions.

So how can freelancers and self-employed workers in Singapore ensure that they have enough for retirement?


1. Budget carefully

Eliminate the money stress with better organisation. First, draw the line between personal and business expenses. For example, track your mileage if you're driving for business-related purposes, such as to meet clients. Set up separate bank accounts for your personal and business expenses or transactions. Spreadsheets or apps such as Planner Bee, Wallet by BudgetBakers, and Spendee are also useful tools for managing your money.

Next, consider budgeting approaches like the 50-30-20 rule, where you allocate your take-home pay to essentials, savings and investments, and lifestyle needs accordingly. This prevents overspending and bolsters financial stability.

Another good practice is to set aside a sum of money for taxes - ideally around 20 to 30 per cent of your monthly income. Singapore's personal income tax rates for resident taxpayers are progressive. A person with an annual income below S$20,000 is not required to pay tax, whereas someone with an annual income of more than S$320,000 has to pay the highest personal income tax rate of 22 per cent.


2. Plan for rainy days

Those who are on contract employment or freelancing should set aside an emergency fund that can cover their living expenses for at least six months, said Mr Lim Kok Boon, Head of Retail Wealth and Branch Distribution at Maybank Singapore. This will be useful for any emergency or health crisis that might require a sizeable sum of money.

It is crucial for freelancers to protect themselves from short-term hardships that may derail long-term financial goals. Consider getting health insurance, income protection and disability income insurance to build your own safety net in case the going gets tough. Personal accident insurance can go some way in protecting you and your family in the event of a mishap. Etiqa's ePROTECT safety offers coverage with a monthly renewable subscription from $18 per month.

Always have sufficient funds in your Medisave account. You can use your Medisave funds to pay for CareShield Life, a disability insurance scheme, or upgrade your MediShield Life with a private insurer's MediShield Integrated Plan to cushion the costs that come with specialised private treatments.


3. Build your own contribution plan

Set aside a fixed proportion from your monthly income to make a voluntary contribution to your own CPF account, which comes with interest rates that are likely to top inflation. For example, interest on Ordinary Account contributions is at least 2.5 per cent a year, while that on Special Account and Medisave contributions are at least 4 per cent.

The principle of compounding to grow your money can also be applied to fixed deposits and investments.

More importantly, adapt your plan if need be - even if you are saving less. The goal is to continue stashing money away to safeguard your future so that you can retire without worry.

Another alternative is to look at endowment insurance savings plans offered by private insurers. For example, Etiqa's Enrich retirement offers the flexibility for premium terms to be stretched from 2 to more than 10 years, depending on level of affordability. The former offers regular payouts during your retirement years, while the latter gives you the option of withdrawing your accumulated cash value from the policy anytime you need it for your key milestones in life.


Take control

Many freelancers may not enjoy income stability or retirement-related benefits given by employers, but they do access other perks like flexibility and independence. What is crucial is that they stay in control of not just their work but also of their finances, and take proactive steps to make sure they are secured for the future.

the bottom line:

Drawing up a thorough plan for retirement early can help freelancers and the self-employed reap the rewards of financial security, especially in uncertain times.

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