Top 13 'Freedom-Fund-Foundation' Investment Strategies to learn for Freelancers to Build a Retirement Without a 401(k) - Goh Ling Yong
The exhilarating freedom of freelance life is unmatched. You're the CEO, the creative director, and the coffee-fetcher, all rolled into one. You set your hours, choose your clients, and build a career on your own terms. But with this great power comes a great responsibility that's often overlooked in the hustle: building your own retirement safety net.
Without an HR department automatically enrolling you in a 401(k) and a company matching your contributions, the entire weight of your future financial security rests squarely on your shoulders. It can feel daunting, like you've been given a map to a hidden treasure called "Retirement," but the map is written in a language you don't understand. The good news? You can absolutely build a retirement fund that's just as robust—if not more so—than a traditional employee's. You just need the right map.
That's why we've put together this comprehensive guide. Think of these 13 strategies as the building blocks for your 'Freedom-Fund-Foundation.' They are the tools and mindsets you can use to translate your hard-earned freelance income into long-term wealth and a comfortable, stress-free retirement. Let's start building.
1. The SEP IRA: The Freelancer's Best Friend
If you're looking for a simple, powerful, and easy-to-manage retirement account, the SEP (Simplified Employee Pension) IRA is your new best friend. It was designed specifically for self-employed individuals and small business owners. Its main superpower is allowing you to contribute a significant portion of your income, far more than a traditional IRA.
The setup is incredibly straightforward—you can open one at any major brokerage in about 15 minutes. The magic lies in the contribution limits. You can contribute up to 25% of your net adjusted self-employment income, not to exceed $69,000 for 2024. This high limit allows you to make substantial progress on your retirement savings, especially in high-income years. Contributions are tax-deductible, meaning they lower your taxable income for the year, which is a huge win for any freelancer.
- Pro Tip: You have until the tax filing deadline (including extensions) of the following year to make contributions for the previous year. This gives you incredible flexibility. If you have a surprisingly good year, you can decide in March of the next year to stash away a large chunk of cash to both boost your retirement and lower your tax bill.
2. The Solo 401(k): The Powerhouse Account
Think of the Solo 401(k) (also known as an individual 401(k)) as the SEP IRA's more advanced, feature-packed cousin. It's available to self-employed individuals with no employees other than a spouse. While it requires a bit more administrative work, the benefits can be immense. It allows you to contribute in two ways: as the "employee" and as the "employer."
As the "employee," you can contribute up to 100% of your compensation, up to $23,000 in 2024 (or $30,500 if you're age 50 or older). Then, as the "employer," you can contribute an additional 25% of your net adjusted self-employment income. The total combined contributions can't exceed $69,000 for 2024. Many Solo 401(k) plans also offer a Roth option for your employee contributions, allowing for tax-free growth and withdrawals in retirement.
- Killer Feature: Some Solo 401(k) plans allow for loans. While borrowing from your retirement is generally not advised, having the option during a true emergency can be a lifesaver for a freelancer without a corporate safety net.
3. The Roth or Traditional IRA: The Foundational Layer
Even with a SEP IRA or Solo 401(k), you shouldn't neglect the humble Individual Retirement Arrangement (IRA). Every freelancer should have one. You can contribute up to $7,000 in 2024 (or $8,000 if you're 50 or older) to either a Traditional IRA or a Roth IRA, in addition to your primary self-employed retirement plan.
A Traditional IRA gives you a potential tax deduction on your contributions now, and you pay taxes on the withdrawals in retirement. A Roth IRA is the reverse: you contribute with after-tax dollars, but your qualified withdrawals in retirement are 100% tax-free. For many freelancers whose income might be lower in their early years, the Roth IRA is incredibly appealing—pay the taxes now while you're in a lower bracket and enjoy tax-free income later.
- Example: Imagine contributing to a Roth IRA for 30 years. That account could grow to hundreds of thousands of dollars. In retirement, you could pull that money out for a vacation, a new car, or just to live on, and the IRS wouldn't see a single penny of it. That's powerful.
4. The HSA: The Triple-Tax-Advantaged Secret Weapon
A Health Savings Account (HSA) might be the single most powerful retirement savings vehicle in existence, and it's hiding in plain sight. If you have a high-deductible health plan (HDHP), you're eligible to open an HSA. It boasts a unique triple tax advantage: your contributions are tax-deductible, the money grows tax-free, and your withdrawals are tax-free when used for qualified medical expenses.
Here's the retirement hack: after age 65, you can withdraw money from your HSA for any reason without penalty, just like a Traditional IRA. You'll only pay ordinary income tax on non-medical withdrawals. This effectively makes it a supercharged retirement account. You can save for healthcare costs tax-free, and if you stay healthy, it becomes a bonus retirement fund.
- Action Step: Don't just use your HSA as a checking account for medical bills. Open an HSA with a provider that offers investment options (like Fidelity or Lively). Invest your HSA funds in low-cost index funds and let them grow for decades.
5. The Taxable Brokerage Account: The Flexibility Fund
Tax-advantaged accounts like IRAs and 401(k)s are fantastic, but they have one major drawback: you generally can't touch the money without penalty until you're 59½. What if you want to retire at 50? Or take a sabbatical at 45? This is where a standard, taxable brokerage account comes in.
There are no contribution limits and no withdrawal restrictions. This is your "bridge" account. You can fund it with any money left over after maxing out your tax-advantaged accounts. This account can be used to fund an early retirement, cover large expenses, or simply provide a buffer before you can access your dedicated retirement funds.
- Tax Tip: Be mindful of taxes. You'll pay capital gains tax when you sell investments for a profit. To minimize this, focus on long-term investing. If you hold an investment for more than a year, you'll be taxed at the much lower long-term capital gains rate.
6. Index Fund Investing: The 'Set It and Forget It' Strategy
As a freelancer, your time and mental energy are your most valuable assets. You don't have time to be a day trader. This is why a passive, low-cost index fund strategy is so perfect. An index fund is a type of mutual fund or ETF that aims to track the performance of a market index, like the S&P 500.
Instead of trying to pick individual winning stocks, you buy the whole haystack. This provides instant diversification and historically has outperformed the majority of actively managed funds over the long run. It's the ultimate "set it and forget it" approach. You can build a globally diversified portfolio with just two or three low-cost index funds.
- Simple Portfolio Example: A great starting point is a "three-fund portfolio":
- A U.S. Total Stock Market Index Fund (like VTSAX)
- An International Total Stock Market Index Fund (like VTIAX)
- A Total Bond Market Index Fund (like VBTLX)
The allocation between them depends on your age and risk tolerance.
7. Dividend Investing: Building a Retirement Paycheck
While index funds are about growing your total nest egg, dividend investing is about building a stream of passive income. The strategy involves buying stocks in stable, established companies that pay out a portion of their profits to shareholders in the form of dividends.
The goal is to accumulate enough dividend-paying stocks that the income they generate can cover your living expenses in retirement. It's like building your own private pension. Many of these companies not only pay a consistent dividend but also increase it every year, meaning your retirement "paycheck" can grow over time, helping to combat inflation.
- Getting Started: Look for companies known as "Dividend Aristocrats" or "Dividend Kings." These are companies that have a long, established history of consistently increasing their dividend payouts for 25+ or 50+ years, respectively.
8. Direct Real Estate Investing: The Tangible Asset
For those who are more hands-on, investing in rental properties can be a powerful way to build wealth. It provides a tangible asset you can see and touch, and it generates monthly cash flow. Over time, your tenants are effectively paying down your mortgage, building your equity for you.
This isn't a passive strategy. Being a landlord requires work—finding tenants, handling repairs, and managing the property. However, the returns can be substantial, combining cash flow, loan amortization, property appreciation, and significant tax advantages like depreciation. It’s a business in itself, which is something many freelancers, as business owners, can appreciate.
- Insider Insight: One strategy is "house hacking." You buy a small multi-family property (like a duplex or triplex), live in one unit, and rent out the others. The rent from your tenants can cover most or all of your mortgage, allowing you to live for free or nearly free while building equity in a valuable asset.
9. REITs: The Hands-Off Real Estate Approach
Love the idea of real estate profits but hate the idea of late-night calls about a broken toilet? Real Estate Investment Trusts (REITs) are for you. A REIT is a company that owns, operates, or finances income-generating real estate. When you buy a share in a REIT, you're essentially becoming a fractional owner of a large portfolio of properties.
You can buy REITs that specialize in all sorts of properties—apartments, office buildings, shopping malls, data centers, and more. They are traded on stock exchanges just like stocks, making them highly liquid. By law, REITs must pay out at least 90% of their taxable income to shareholders as dividends, which can make them a great source of passive income.
- Portfolio Tip: You can easily add real estate to your portfolio by purchasing a low-cost, diversified REIT index fund or ETF, such as Vanguard's VNQ.
10. Automate Everything: The Ultimate Behavioral Hack
The single best thing you can do to ensure you consistently invest is to put it on autopilot. Motivation is fleeting, but systems are reliable. A principle Goh Ling Yong often emphasizes is that your financial systems should work for you, not the other way around. Set up automatic, recurring transfers from your business checking account to your investment accounts.
Decide on a percentage of your income you want to save (aim for at least 15-20%). Then, set up an automatic transfer for the 1st of every month. The money moves to your SEP IRA, your Roth IRA, and your brokerage account without you having to think about it or feel the "pain" of parting with it. You treat it like any other bill that has to be paid.
- Actionable Step: Log into your bank account right now. Set up a recurring monthly transfer to your investment account, even if it's just $50. Start the habit today. You can always increase the amount later.
11. The 'Profit First' Method for Investing
Many freelancers struggle with the feast-or-famine cycle, making it hard to save consistently. The "Profit First" methodology, originally for businesses, can be brilliantly adapted for personal finance. The traditional formula is Income - Expenses = Savings. The Profit First formula flips this: Income - Savings = Expenses.
When you get paid, immediately transfer a predetermined percentage to your savings and investment accounts. What's left is what you have to run your life and business on. This simple psychological shift forces you to prioritize your future self. It ensures you're building your Freedom Fund first, not with whatever scraps are left over at the end of the month.
- Example Setup: Open separate bank accounts for different purposes:
- Income: All client payments land here.
- Taxes: Immediately transfer 25-30% of every payment here. Don't touch it.
- Investments: Transfer 15-20% here. This is your Freedom Fund.
- Operating Expenses: What's left is used for your monthly bills and discretionary spending.
12. Reinvesting In Your Business: The Multiplier Effect
One of the most powerful and often overlooked investment strategies for a freelancer is to invest in the one asset you have complete control over: your own business. A 10% annual return in the stock market is considered great. But what if you could invest $2,000 in a new certification or piece of software that allows you to raise your rates and earn an extra $10,000 a year? That's a 500% return.
Strategically reinvesting a portion of your profits back into your business—through marketing, education, better equipment, or hiring a virtual assistant—can dramatically increase your earning potential. This, in turn, gives you more capital to pour into the other investment strategies on this list. It creates a powerful flywheel of growth.
- Smart Investment Ideas: A professional branding course, a subscription to a key industry tool, attending a major networking conference, or hiring a coach to help you scale.
13. The Cash Cushion: Your Foundation of Freedom
This isn't an "investment" that will grow your wealth, but it's the absolute, non-negotiable foundation upon which your entire financial house is built. Before you invest a single dollar, you need an emergency fund—a cash cushion of 3 to 6 months' worth of essential living expenses held in a high-yield savings account.
For a freelancer with variable income, this is your lifeline. It's what allows you to say "no" to a bad client. It's what covers you when a client pays late or you have an unexpected dry spell. Without this cash cushion, any market downturn or income fluctuation could force you to sell your long-term investments at the worst possible time or go into debt. It's the strategy that protects all your other strategies.
- Where to Keep It: Don't let it sit in a traditional savings account earning 0.01%. Open a high-yield savings account (HYSA) online. You'll earn a much more competitive interest rate while keeping your money safe and accessible.
Your Freedom Fund Awaits
Building a retirement fund as a freelancer isn't more difficult than for a traditional employee; it just requires a different, more proactive approach. You have the power and the flexibility to create a personalized financial plan that works for your unique career path.
Don't let analysis paralysis stop you. You don't need to implement all 13 of these strategies at once. Start with a solid foundation: build your cash cushion (#13). Then, open a retirement account like a SEP IRA (#1) and automate your contributions (#10). From there, you can explore and layer in other strategies as you grow more confident.
The key is to start now. Your greatest asset is time. By taking control of your financial future today, you're ensuring that the freedom and independence you've worked so hard to create will last a lifetime.
Now it's your turn. Which of these strategies are you already using? Which one are you most excited to try next? Share your thoughts and questions in the comments below!
About the Author
Goh Ling Yong is a content creator and digital strategist sharing insights across various topics. Connect and follow for more content:
Stay updated with the latest posts and insights by following on your favorite platform!