Managing retirement savings with a variable income presents its own set of challenges, but it’s crucial to plan effectively for your financial future. Here are steps to help address common questions that arise in situations like yours.

Step #1 – Determine what percentage of your income to save for retirement

Start by examining your annual income over the past few years. If you already know how much money you need to save each year to meet your retirement goals, translate that amount into a percentage of your earnings. For instance, if your average annual income is AED 100,000 and you aim to save 10% (AED 10,000) per year for retirement, you have a baseline.

Step #2 – Determine your lowest income month

Identify the low-income periods of the year of your freelancer journey by reviewing your records and income trends. Try to understand whether your lowest income month is a one-off event or somewhat predictable based on the season or industry trends. Estimating your lowest income month for the next 12 months helps you get started.

Step #3 – Set up an automatic savings plan for retirement for freelancers

Using the percentage from Step #1 and your lowest income month from Step #2, create an automatic savings plan. Apply the percentage to your lowest income month to ensure you’re consistently saving towards retirement. This approach ensures your savings remain proportional to your variable income and takes advantage of cost averaging within your retirement investments.

Step #4 – Make manual contributions each month (or periodically)

The automatic savings plan from Step #3 serves as your baseline contribution. In months where your income exceeds this baseline, save 10% of the extra income for retirement. For example, if you earn AED 2,000 more than your baseline of AED 4,000, save 10% of that extra AED 2,000, which is AED 200. Adjust your manual contributions according to your variable income.

Step #5 – Review the plan annually

As your income fluctuates, periodically review your plan and income trends. If your lowest income month increases, raise your automatic contributions accordingly. Conversely, during tough times with decreased income, lower your automatic contributions. This approach ensures you continue saving a proportionate amount of money for retirement as your income changes.

This strategy helps you navigate the challenges of a variable income and ensures you consistently save for retirement. It also takes advantage of cost averaging within your retirement investments, potentially reducing investment risks. Remember to periodically contribute accumulated balances to your retirement account without borrowing from it, and maintain a safety fund to cover fixed monthly expenses during low-income months. By automating part of your plan, you increase your chances of achieving your retirement goals, a crucial step toward securing your financial future.

Find out how to increase your earnings as a freelancer.


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