How can self-employed individuals plan for retirement?
A translation major, Flora is now 38 and works as a senior translator at a blue-chip corporation with a monthly income of HK$35,000. Her duties mainly include translating business letters and legal documents, such as company notices. Her husband Alex works as a senior editor at a lifestyle magazine, with a monthly income of HK$42,000. Flora has recently begun accepting freelance work from friends, with an income of around HK$6,000 to HK$8,000 per project. With so much freelance work coming in, Flora is toying with the idea of becoming a full-time freelancer. This could free up her schedule for travelling, a huge attraction for a travel-lover like herself.
Flora is discussing with her husband whether she should quit her day job and work freelance full-time. Alex thinks that freelancers have unstable income and limited prospects, and face enormous competition. They also have to pay for their own medical and hospitalization insurance, as well as their own pension plans. Working at home would also add to their household's miscellaneous bills, such as electricity. Flora, however, believes that the risks are low, and that she can maintain her current income as long as she accepts three to five projects each week. She does agree with Alex about the medical insurance, and the consequences should she be unlucky enough to be struck by an accident or critical illness.
Flora and Alex live in a property owned by their parents. Aside from two to three trips per year, they live quite simply and their monthly living expenses total around HK$23,000. With a current asset value of HK$2.7 million, they require an additional HK$5.1 million to maintain their current lifestyle after retirement – assuming that their investments can make an average return of 4%, their retirement period is 25 years and there is year-on-year inflation of 3.3%. If they begin accumulating their wealth in the next 20 years and preparing long-term investments, they are within reach of achieving their retirement goals.
Retirement seems like an abstract concept for self-employed individuals. Many freelancers still accept work after retirement age. The most important thing to note is that freelancers do not have pensions and medical insurance from a company, so they must plan for these aspects in advance. They should also focus on accumulating their wealth to ensure that they can keep pace with inflation after retirement.
Special thanks to the case study provider: Financial expert: Simon Lee (Co-Director, International Business and Chinese Enterprise (IBCE) Senior Lecturer, School of Accountancy)
|Current Monthly Expenses:||HK$23,000|
|Combined Assets Value (including MPF contributions to date):||HK$2.7 million|
If you are self-employed, you have to consider these factors for retirement: