Financial Planning Tips for Self-Employed Older Adults

 

Earlier this year, a new Facebook group started in my 55+ community: a group for self-employed residents with small businesses including hair styling, dog-walking and grooming, airport drivers, real estate sales, website design, computer repairs, wood-working and crafts, and more. 

As a financial education solopreneur who works from home, I was happy join a group of kindred spirits to share information about each other’s products and services.

 

We are not alone. The number of self-employed older adults has been steadily increasing in recent years driven by factors such as longer life expectancy, changing attitudes toward work in retirement, and technology advancements that enable remote work. 

Other factors are a desire for flexibility and work-life balance (i.e., more time for leisure activities, travel, and family) and ageism, which is easier to mitigate when you “hire yourself” and are your own boss. 

Below are five financial planning tips for older adults who are newly self-employed:

 

Keep Good Records- Use an Excel® spreadsheet or other easy-to-use record-keeping method to track business income and expenses (e.g., office supplies, equipment, travel, marketing, and professional services). It is also easier to keep personal and business finances separate by maintaining dedicated bank accounts and credit cards for business transactions.

 

Stick to a Schedule- Invoicing clients promptly and following up on overdue payments can maintain healthy cash flow and avoid disruptions to personal finances. Set aside a portion of self-employment income to send to the IRS for quarterly estimated tax payments (and/or over-withhold on a pension or Social Security) to ensure compliance with tax regulations.

 

Continue Retirement Plan Contributions- Older self-employed adults can continue to contribute to Roth or traditional individual retirement accounts (IRAs) and simplified employee pension (SEP) or SIMPLE IRAs. Contributions to non-Roth accounts are often tax-deductible, thereby reducing adjusted gross and, ultimately taxable, income. Also remember that self-employed older adults will continue to pay FICA tax equal to 15.3% of net business income. They can be on Social Security and Medicare while earning money from self-employment.

 

Don’t Overlook Health Insurance Tax Premiums- Self-employed older adults who pay their health insurance premiums (including Medicare) may be eligible to deduct these expenses as an adjustment to gross income. This includes premiums for medical and dental insurance for themselves and their spouse as long as their business income exceeds the health care expenses and they do not have retiree health insurance from a previous employer.

 

Consider Business Insurance- Depending on the type of enterprise, types of business insurance that can help protect business and personal assets include an E&O (errors and omissions) policy, business property insurance, and liability insurance. Also, some airport drivers in my community drive their clients’ cars to avoid business use of their own vehicles.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Loud Budgeting: A Financial Discipline Strategy

 

Have you heard the term “loud budgeting?” It started gaining traction earlier this year on TikTok (where else?) and has been covered by financial media outlets ever since. An influencer named Lukas Battle coined the term, which is meant to convey transparent and intentional spending. 

Loud budgeting follows a 2023 term called “Quiet Luxury,” where people buy high-quality timeless, luxury items but do not brag about them.

 

Two original TikToks about loud budgeting received one million views in under a month, an indication of the concept’s appeal. Below is a brief summary of key features of loud budgeting that I learned about on a recent webinar hosted by Next Gen Personal Finance:

Unapologetic Truth- Loud budgeting emphasizes being truthful about your budget unapologetically. Instead of saying “I’m sorry but I can’t…,” to a request to do something that involves money, a loud budgeter will say “It’s not in my budget.” No. Apologies. Period. As Lukas Battle once stated “It’s not “I don’t have enough,” it’s I don’t wanna spend it.”

 

Transparent Spending- Loud budgeters are known for tracking and sharing details about their spending. Money-saving hacks of all kinds are shared in an environment of transparency, communication, and collaboration. At its core, loud budgeting involves openly discussing financial goals and constraints within a trusted community of family, friends, and followers.

 

Terminology Rebranding- Loud budgeting is nothing new. People have been creating budgets and sharing money-saving strategies for eons. Loud budgeting is simply a new term for purposeful spending much like “cash stuffing” is a new term for the envelope budgeting method where money for different categories of household spending is placed in envelopes.

 

Focus and Confidence- Successful loud budgeters speak confidently about their goals and plans and do not let others change their mind about opportunities to spend money. Unlike traditional budgeting that tends to be solitary, loud budgeting encourages individuals to openly communicate their priorities.

 

Accountability- Loud budgeting emphasizes transparency, including regularly updating others on your financial status and progress. This, in turn, fosters accountability. Individuals are more likely to stick to their budgeting plans when they know that others are aware of their goals and progress. Collaboration is a key aspect of loud budgeting. Rather than managing finances in isolation, individuals are encouraged to work with others to achieve common financial goals.

 

In summary, loud budgeting is more than just crunching numbers—it's about actively engaging with one's finances, openly communicating with others, and collaborating to achieve financial well-being. By embracing loud budgeting principles, individuals can take control of their finances and work towards a more secure financial future.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Reinventing Retirement: Customizing Your Third Third

 

People’s lives can grouped into three basic chapters: youth/education, career, and post-career (a.k.a., retirement). In the first chapter, our lives are controlled by parents and teachers and, in the second, people have career and/or family responsibilities. 

It is not until the third chapter that many people have the ability to decide what they want to do and who they want to be.

 

People spend about 30% of their adult lives in retirement. I recently attended a presentation called Reinventing Retirement and below are seven take-aways about this final phase of life:

 

Freedom and Flexibility- Later life provides a long-awaited opportunity to “customize” your lifestyle. Of course, people have different tastes, interests, and personal situations that influence what they expect but, for most older adults, it’s about having more time, freedom, and flexibility than before. The question then becomes what to do with that time and freedom.

 

Retirement’s Many Faces- Lifestyles in retirement include completely stopping work, pursuing a new line of work or starting a business, more actively volunteering, spending more time traveling, pursuing hobbies and interests, caring for loved ones, and more. A phrase used several times during the class was “If I’m not dead, I’m not finished.”

 

Current Retirement Trends- Baby Boomers have more discretionary income than previous generations of retirees. They are redefining the meaning of retirement in many ways including retiring later, continuing to work, and unretiring; finding new ways to make and maintain social connections; increased focus on health and fitness; and pursuing lifelong learning.

 

Retiring “To” Rather Than “From”- It can be stressful to leave the working world, particularly for people whose identity was wrapped up in their job. It is, therefore, essential to plan your next move. Without having something to retire to, people can feel a loss of importance and daily time structure and miss work-related interactions and friendships.

 

Ageism and Discrimination- Just because many older adults want to work does not mean they can easily find a job. Ageism and age discrimination in the workplace are commonplace and an AARP survey found that two-thirds of older adults have seen or experienced it. Increasingly, older adults are getting around that problem by working for themselves or buying franchises.

 

The Social Side- Many of today’s retirees do not live in close geographic proximity to family. Instead, they create a sense of family with people who are not necessarily blood relatives. A growing trend among people who choose to relocate is recruiting friends to become neighbors.

 

Life-Long Learning- Intellectual stimulation isn’t just for the young. Continuous learning is an important investment in brain health and a key anti-aging strategy. It can also help older adults discover and develop new talents. There are always new things to learn and try. One recommendation given at the class was to set a goal to try something new every month.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Highlights of Recent Webinars: Second Quarter Summary

 

It’s that time again! Every quarter, I like to review and summarize my notes from recent webinars and classes. Below are some interesting tidbits that caught my attention from recent programs:

IRMAA Medicare Premium Surcharges- About 8% of older adults pay income-related monthly adjustment amount (IRMAA), a higher premium paid by Medicare recipients with higher incomes. There are five tiers of IRMAA on a sliding scale and the income ranges for each tier are based on income two years prior. While technically not a tax, IRMAA is a drag on payees’ bottom line.

 

Brain Fog- People can experience “brain fog” (i.e., forgetfulness and difficulty focusing on tasks and paying attention) when they experience major life transitions such as death of a spouse and financial stress. To not become overwhelmed, experts recommend making three lists of things to do: 1. Now, 2. Soon, and 3. Later.

 

JOMO- This was new to me. Instead of FOMO (fear of missing out), JOMO is an acronym for “joy of missing out.” In other words, people are happy not indulging in high-cost activities that put a strain on their finances. Instead, they save money and achieve financial independence (FI).

 

Women’s Finances- The gap between average salaries for men and women can add up to hundreds of thousands of dollars over working years. Five steps for women to take charge of their financial future are: 1. Setting goals, 2. Building an emergency fund, 3. Getting involved in family finances (e.g., net worth and cash flow), 4. Learning about investing, and 5. Saving for retirement.

 

Tax Diversification- It is risky to put all your retirement savings in tax-deferred accounts (a.k.a., qualified plans) because you don’t know what future tax rates will be when required minimum distributions begin. The highest U.S. tax rate was once 90% for over 20 years. Instead, select multiple investment accounts with different tax structures (e.g., tax-deferred, tax-free, taxable).

 

“Free” Money- There is truly “free” money and free money with strings attached. Gifts and inheritances are typically 100% free. They are not taxed and typically do not require anything of recipients. On the other hand, employer retirement plan match requires worker savings and credit card rewards and restaurant and retailer rewards programs require consumer spending.

 

Building Wealth- Where you grew up does not need to stop you from who you want to be. A simple path to wealth is dollar-cost averaging (i.e., investing regular amounts at regular time intervals) into index funds over time. Yes, it is “boring,” but you don’t need to know earnings per share or study corporation balance sheets. The more modestly you live, the easier it is to reach FI.

 

Generative AI- Data for generative AI (e.g., ChatGPT) is derived from the internet with all of its biases including racism and sexism. As a result, many organizations are creating their own large language models (LLMs). The best way to start using AI is to just get out there and play.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Key Take-Aways About Social Security From a Webinar

I recently attended a webinar about Social Security retirement and survivor benefits by OneOp with an emphasis on retirement and survivor benefits. Below are seven key take-aways:

 Benefit Payments- Retirement benefits are determined by the amount workers earn and pay in FICA (Federal Insurance Contributions Act) tax, which often shows on paychecks as OASDI. Total FICA tax is 15.3% of gross earnings: 7.65% each paid by workers and their employers. The 7.65% tax is divided: 6.2% is for Social Security and 1.45% for Medicare.

 

Benefit Credits- Workers earn credits (a.k.a., quarters of coverage) when they work and pay FICA tax. To qualify for future benefits, they need 10 years of work (40 credits) and must be age 62 or older. In 2024, at least $1,730 of earnings in a three-month period provides one credit and workers can earn a maximum of four credits per year.

 

Benefit Calculation- Workers’ wages are inflation-adjusted for changes in wage levels over time and the highest 35 years of earnings are used to determine “average indexed monthly earnings” upon which benefits are based. If there are less than 35 years of career earnings, years without earnings are counted a $0 in the benefit calculation formula.

 

Benefit Reductions- Workers with a pension derived from work not covered by Social Security who qualify for Social Security anyway (e.g., by earning 40 credits from side hustles) will have a different benefit computation resulting in a lower Social Security benefit. Those under full retirement age (67 if born in 1960 or later) who work while receiving benefits are affected by an annually inflation-adjusted earnings limit ($22,320 in 2024).

 

Taxation of Social Security- Tax on Social Security is based on a calculation called “combined income” (adjusted gross income + nontaxable interest earned + half of Social security income). If combined income is greater than $25,000 for single taxpayers and $32,000 for couples filing jointly, a portion of Social Security is taxable. Social Security recipients can request that the Social Security Administration withhold taxes to cover their extra tax liability.

 

Spousal Benefits- Spouses receive the higher of a benefit based on their own work record or half their spouse’s benefit. If a spouse’s own benefit is less than 50% of a worker’s, they are combined to equal 50% of the worker’s. Spousal benefits are not paid until a worker collects.

 

Divorced Spouses- Divorced spouses may receive benefits on a former spouse’s record if the marriage lasted at least 10 years, they are unmarried, they are age 62 or older, and the ex-spouse is at least 62 and eligible for retirement or disability benefits, even if not collecting. A current spouse and ex-spouse get the same amount up to the total cap for all benefits.

 

For additional information about Social Security, visit www.ssa.gov or schedule an in-office appointment at 1-800-772-1213. Get a personal Social Security benefit estimate at www.ssa.gov/myaccount.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.